Automobile Dealerships – Valuing Blue Sky

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Blue Sky is the intrinsic value of an automobile dealership, over and above the value of its tangible assets. It is sometimes equated to the goodwill of a car dealership.

Most articles regarding the blue sky value of new car dealerships cite a multiple of earnings formula, such as three times earnings, four times earnings, and so forth. The idea that “blue-sky” can be determined by anything times anything is just plain wrong.

Even NADA the National Automobile Dealers Association in its publication entitled “A Dealer Guide to Valuing an Automobile Dealership, NADA June 1995, Revised July 2000 bemuses, in part, with respect to valuing a dealership by using a multiple of earnings: A Rule of Thumb valuation is more properly referred to as a “greater fool theory.” “It is not valuation theory, however.”

In its Update 2004, NADA omitted its reference to “fool”, but referred to the multiple formula as rarely based upon sound economic or valuation theory, and went on to state: “If you are a seller and the rule of thumb produces a high value, then this is not a matter of great concern. Go for it, and maybe someone will be stupid enough to pay you a very high value.”

A dealership’s blue sky is based upon what a buyer thinks it can produce in net profit. If potential buyers think it cannot produce a profit, the store will not sell. If it can produce a profit, then variables such as desirability of location, the balance the brand will bring to other existing franchises owned, whether or not the factory will require facility upgrades, and so on and so forth, determine whether or not a buyer will buy that particular brand, in that particular location, at that particular time.

I have been consulting with dealers for nearly four decades and have participated in over 1,000 automotive transactions ranging from $100,000 to over $100,000,000 and have never seen the price of a dealership sale determined by any multiple of earnings unless and until all of the above factors have been considered and the buyer then decided he, she or it was willing to spend “x” times what the buyer thought the dealership would earn, in order to purchase the business opportunity.

To think otherwise would be to subscribe to the theories that (1) even though you think a dealership could make a million dollars, the store is worth zero blue sky because it made no money last year; and (2) if a store has been making $5 million per year you should pay say 3 times $5 million as blue sky even though you think you will not produce that kind of profit. Both propositions are absurd. If a buyer does not think a dealership is worth blue sky, then what he is really saying is that he sees no business opportunity in the purchase and therefore, in my opinion, he should not buy the store.

Each dealership is unique with respect to its potential, location, balance that its brand brings a dealer group, and condition of facility. The sale is also unique with respect to whether it is a forced liquidation, orderly liquidation, arms length, insider, or a case where an anxious buyer is trying to induce an unwilling seller. There are management factors to consider, length and term of leases, possibilities or non-possibilities of purchasing the facilities and whether or not the factory wants to relocate the store or to open a new store up the street.

In the car business it is impossible to pick a dealership or a franchise out of a hat, multiply its earnings by some mystical number and predict either what the dealership is worth, or what price it would sell for – and it doesn’t matter if you are talking about a Toyota, Honda, Ford, Chevrolet, Chrysler, Dodge, or any other dealership. At any given time one franchise might be considered more or less desirable than another, but they are all valued in the same manner.

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Original article by John Pico J.D.

The Importance of Real Estate Education

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Real estate is said to be one of the best investments that an individual can make, but if this is true, why do so many people fail at it? The truth is that an adequate real estate education is needed in order to help you out along the way because the real estate industry can truly turn on you in a real hurry if you are not prepared. Real estate investments are very likely to yield a generous return if the proper steps are taken, but too many people simply do not have the skills to make these deals happen. These are the people who did not take the time to get a real estate investing education and, therefore, will be more likely to fail when things do not go according to plan.

A proper education will prepare these investors for the problems that they will deal with along the way and give these people the skills that they need to work through these problems. In addition, this education teach innovative techniques that many more seasoned investors might not have, which will give these students an advantage in this very competitive industry. During the course, the real estate investor will also be introduced to lenders, builders, attorneys and bankers who can help them close the deals in an efficient manner. Having these connections could be the difference between succeeding and failing, so this is reason in itself to get a real estate education. These courses can even be broken down into specific types of investing, which can cut down on your classroom time and get you into the game even faster.

Even with a real estate investing education, there might be some bumps along the road, but this education will give the investor an idea of how to deal with these bumps without losing too much. There is so much more that goes into real estate investing than simply buying properly, developing it, and selling the finished product and all beginning investors need to know about these nuances before getting involved. Even more seasoned real estate investors are now taking these courses to refresh their memories and possibly even add new techniques to their knowledge base. All successful businesspeople will tell you to never stop learning and this education is one way to stay on top of things.

A real estate education is becoming almost mandatory for those who wish to become real estate investors because so many successful people have already been through these courses. Therefore, taking them can level the playing field somewhat because you will have access to the same techniques as people who have already made a lot of money. This field is not for everyone and it requires a great deal of risk when starting out, so it is extremely important that you are aware of these immense risks. This education will also help you make you aware of what you can lose during this process, which will allow you to make the best decision possible for yourself.

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Original article by Lisa Schwartz

Why Wholesaling Mortgage Notes Isn’t The Perfect Investment Strategy

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Buying and attempting wholesaling mortgage notes have become an incredibly hot buzz topic in the last year. Yet, despite the appealing benefits being promoted by note sellers, brokers, gurus and some of the media they may not be the magical solution to easy and large profits from the real estate market that they are sometimes made out to be.

So what’s the real deal with buying, selling and flipping loan notes? What are the real pros and cons, and are there any better real estate investment strategies which may better help some investors achieve their objectives?

Wholesaling mortgage notes can be incredibly profitable. There is no question about that. Banks make millions every day by originating and wholesaling these debt instruments. Some have also certainly realized reasonable ongoing passive income from holding this type of paper. Of course many have also lost big, and that may be a scenario which continues to become more common for a variety of reasons.

The biggest challenge most face and why they completely fail and bankrupt themselves when trying to get into wholesaling mortgage notes is because most people have no idea how to properly evaluate notes or what makes notes valuable.

Obviously if you don’t know the value of what you are buying you don’t know if you are overpaying or not. And it’s hard to resell something for a large profit fast when you already way overpaid for it. This creates huge problems at all stages from creating to selling loans, and especially when investors get stuck holding non-performing notes while trying to season them.

It is entirely possible to borrow money to buy and flip them or even create notes yourself, though perhaps not as easy to flip for much larger spreads immediately.

Some target non-performing notes as an acquisition strategy to fuel other forms of real estate investing. Often this involves foreclosing on borrowers that continue to fail to pay. It’s a ‘good idea’, though not always as effective and easy in reality. When you’ve got a homeowner that refused to pay their $5,000 in taxes to protect a $200,000 property and has re-defaulted on a loan modification and still refuses to move it’s unlikely to be an easy, cheap or short legal battle.

In contrast directly wholesaling homes is different, and makes it much easier for those new to real estate to evaluate potential deals and provides them with a bigger retail market and more exit strategies.

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Original article by Sean Terry

World Oil Deals – Are Fortunes Made As Intermediary in Oil and Petroleum Trade Deals?

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A. THE GET-RICH-QUICK ETHIC IN THE BUSINESS

We call this the ‘get rich quick’ or ‘get rich overnight’ ethic or mentality. That is, the notion and thinking that just the mere involvement of one in the petroleum trading business, whether as a dealer or a broker, agent or other intermediary role, will almost automatically guarantee one a millionaire, in deed, a multimillionaire, station in life, and almost in no time at all! That is an ethic and mentality that has pervaded the common mindset and psychic of the average intermediary involved, or contemplating involvement, in the business today, and has been even particularly more heightened since the modern era of the Internet trading. In a word, it is a mentality that says that world oil deals and the petroleum trading are a business that is awash in wealth and fortunes and easily guarantees the intermediary who gets involved in it in any capacity at all, but in particular as an agent or intermediary of some sort, that, as one analyst put it, “you are going to be super rich next week or next month” by doing so.

Historically, in the past, over a period of several decades (and beyond), there has almost always been a sizable number of what could be called “professional middlemen” who operated in the oil and other commodity “secondary market” trading industries who are primarily but genuinely driven by the belief or inner conviction that working as an intermediary in the industry is a reasonable path to honest living which, if not leading one to an instant wealth, then at least to a reasonable means of livelihood and steady economic progress and well-being.

In more recent times, however, since the advent of the Internet and its increasing role as the dominant and preferred tool for conducting business among intermediaries, there has gradually shifted and developed, in stead, over the years, a “new breed” of intermediaries and middlemen (brokers, agents, etc) in the trade. Often given to far less education, training or apprenticeship in the trade than the previous pre-Internet generation of intermediaries, and usually having vastly less knowledge and experience in the art of international trading because of the greater ease of entry into the business afforded them by the Internet, as a group this “new breed” of post-Internet intermediaries and middlemen are generally less shackled by the normal moral code or ethics and decorum, and are more greedy and in a greater hurry to “strike it big and fast” by merely working as an intermediary. And, just as importantly, they’re in a greater hurry to clinch that elusive, dubious get-rich-quick ambition by any means whatsoever, including the scamming of unsuspecting or gullible international crude buyers, as such scheme is aided and made easier for them by the Internet and the easier cover of anonymity that it provides them.

In deed, as many knowledgeable observers and respected analysts of the industry have noted, the get-rich-quick greed and mentality have, in these hard global economic times of today (mid 2012), reached an even new, particularly frenzied high, as many crooks, scammers and fraudsters with actually no real crude oil to sell, have now trooped into the international crude oil selling business in unprecedented numbers, seeing that arena as a fertile ground for them in attaining their dubious ambition of “striking it big and fast.”

Robert McAngus (among many others), the Managing Partner/CEO for the Robert McAngus Group, has noted, with great lamentation, that phenomenon. In a 2004 article, McAngus voiced a rather ringing alarm at the escalated, often grossly unrealistic, divorced-from-reality kind of the commission fees being demanded, or expected, in recent times by brokers and intermediaries in the petroleum trading.

According to McAngus:

“Over the past few years, I have seen the fees charged to a possible transaction spiral upward in some cases reaching the astronomic heights of $30 USD per metric ton to be divided 50/50 between the buy side and the sell side. For God sake! Get a life! Or at least do the mathematics, on a simple 100,000 metric ton transaction using the figures I have quoted, that’s $30,000,000.”

McAngus continues, asking: “Please explain how we, as the buyers, are supposed to justify that amount of money to the bank at which we have our lines of credit, and perhaps if I have a reader at this point they can explain what the broker did to earn this amazing sum of money… I have no idea where the idea that fees of this magnitude are paid to brokers in an oil transaction [came from], or for that matter who in the transaction is going to pay them, certainly not me as the buyer!.”

A salient aspect of this common notion and thinking is that to attain this high financial status of instant wealth in the business, you need not necessarily have to work hard or to be trained or particularly experienced in and knowledgeable about, it, but can attain it by this doing basically nothing – other than, perhaps, just shoving around a few copied or bogus false oil trade deals documents on the Internet usually passed down to the particular intermediary from other fellow equally uninformed brokers and intermediaries.

B. BUT HOW TRUE OR REAL IS THIS THINKING?

The principal question, of course, is: How true or real or not is this general thinking, if any? Are fortunes made as intermediary in petroleum and oil trade deals? We shall address this issue pretty soon. But, first of all, let us address the general nature of this thinking, and its general genesis or origins.

C. A MAJOR INFLUENCE and FACTOR IN THE CREATION OF THIS MINDSET OF GREED & GET-RICH-QUICK MYTHOLOGY

There might, of course, have been some other significant relevant factors and influences to which the origins and genesis of this present-day phenomenon of get-rich-quick mentality in oil deals could be attributable. But, for our purposes here, suffice it simply to say that, based upon this writer’s own extensive research on the subject, there seems to be one dominant intellectual factor, above all, which has significantly influenced and aided a great many among the current breed of Internet brokers and intermediaries in formulating this conception of the nature of the oil trading business, and of the above-described current mentality of greed and get-rich-quick mythology that is widely prevalent among these players about the oil business.

And what is that factor?

Somewhat incredibly, that factor seems to be one rather obscure e-book rather appropriately titled “How to Earn $Millions in Oil Deal.” Its author is Mr. Sam Igwe, who goes by the alias Sam Nelson, said to be an operator of an oil consulting service since 2003. Credible research shows that an early, cheap, but powerful and influential Internet promoter and preacher of the gospel of the quickie-and-easy-wealth-from-service-as-a-petroleum-deal-agent, is this simple publication by Mr. Sam Igwe, alias Sam Nelson – titled “How to Earn $Millions in Oil Deal.”

D. The Basic Doctrine of “get rich-quick-with-no-work-or-effort” of the Nelson Publication

In point of fact, Sam Nelson’s “How to Earn $Millions in Oil Deal” publication lives absolutely up to the billing of its title as an ardent gospel that fervently preaches what the title denotes!

Though nominally stating at the outset that the book is “not a ‘Get Rich Quick’ book,” the book promptly asserts that “If you are searching for a sure, fast and genuine way to earn fast, steady, honest living and how to become a millionaire, I bet, this is the right book [for you].” The publication proclaims itself to be “the clear path to financial freedom,” it declares its prime mission as being to teach the reader “the long-held secrets of how to work smart and become a big-time Agent, millionaire within few months,” and asserts that it “is intended to open the eyes and minds of the readers to join the team of the big players in crude oil business.”

Regarding the amount of money the average intermediary agent or “facilitator” is to expect, Nelson asserts,

“• Do you know you can become an Oil Deal Facilitator and EARN Millions of dollars within few months? • Do you know you can become a Buyer’s or Seller’s Agent? • Do you know you can EARN $1,000,000 – $2,000,000 just for successfully closing one Oil deal within few months?” He adds that you can “induct yourself into the Millionaires Club!,” that you “can change your life forever by becoming an Oil Deal Facilitator and earn up to ($2,000,000) two million dollars within few months… [with only] a phone and an Internet access, your only investment is just this step-by-step (Manual).”

Nelson sums up his “attain super wealth overnight” doctrine this way:

“There are millions of barrels of Crude Oil being sold daily around the world. You can close a deal in any part of the world. Just a click of your mouse and few phone calls plus extra smart work… you can earn Millions of dollars in just few months by successfully closing one Oil Deal working in the comfort of your home as a facilitator. These secrets have not been made public because the participants do not want the public to learn their game. These oil deal giants have been very privileged to learn the game and have constantly made people feel that one has to be a millionaire before he/she can participate. This is not true.”

E. No Work, No Education or Skills Required!

And is there any amount of work or efforts that it will take for the agent to master this business and make a success of it, or to earn all that money? Is there any education, skills, knowledge, investment and experience that this will take or require? Nelson’s answer to these questions is, basically, practically little to none of that. According to Nelson, “This is Easy and Simple! Just from your dinning table you will work at your own pace and make millions of dollar within few months. There is no hidden cost. No huge investment. No upfront fees. (WE MEAN ‘NO FEES UPFRONT’).”

F. BUT HOW TRUE OR REAL IS THIS THINKING?

And now we get back to this central but critical question: How true or real is this general thinking, if any at all? Basically, the question is, are fortunes made as intermediary in petroleum trade deals, in fact?

In point of fact, if we were to put it simply in a word, probably the most fundamental and truest thing that could be said about the above-sketched doctrine of “get rich quick with no work or efforts” for the oil trader or intermediary, is simply that that doctrine is completely and patently false and misleading, and is at variance with, and directly contradictory to, the whole TRUTH and actual REALITY about the business! It is that the above-prescribed thinking is patently contradicted by the well-established, tried-and-proven trading doctrine and thinking that has long been preached, practiced and successfully used by mainstream traders and the most respected and most successful experts and practitioners of trading for generations in the industry!

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Sure, decent money, or, in deed, even high incomes could still be made, and continue to be made, by many persons working as an intermediary in the business today, and a good number of intermediaries still close oil trade deals that are lucrative. But that’s ONLY by someone, however, who shall have already “paid his dues” in the industry before hand, before he (she) can possibly attain such success and such income working in the business – in terms of having acquired the requisite education and training, of being skilled and knowledgeable in the fundamentals of the trade and the appropriate rules and procedures of the trade, and, above all, of having acquired the hands-on practical experience and apprenticeship and long years (some 2-3 years or more) of painstaking, patient, diligent hard work in the business.

Clearly, that is a far, far, cry from the Nelson doctrine outlined above which essentially says and spreads the thinking that, as a broker or agent working in world oil deals and trading, you’re almost automatically “guaranteed” to close oil trade deals and to attain incredibly humongous and high “millionaire” financial status of instant wealth within months in the business just by the mere trying of your hands at it; and that you need not necessarily have to work hard at it or to be trained or particularly experienced in and knowledgeable about it, but can attain such great wealth overnight, any way, by doing basically nothing — other than, perhaps, just shoving around a few copied or false oil deal documents on the Internet usually passed down to the particular intermediary from other fellow brokers and intermediaries.

Clearly, anyone who really knows anything about the true realities of the business, would immediately tell you that nothing could be more ‘Joker Broker’ like type of philosophy than the above-described Nelson doctrine. An attitude and mindset that immediately reminds one of this characterization made by one analyst about the core nature of the joker broker, “Some of them [the “Internet” brokers or joker brokers] are quite entertaining [in the notions about the workings of business they typically exhibit], and remind us of the Nigerian scam artists. The world simply [just] does not work like that.”

G. THE PERVASIVENESS OF SUCH THINKING AMONG THE INTERMEDIARIES

Yet, such attitude and thinking fundamentally represents the kind of underlying mindset and mentality which typically pervades and controls the thinking of most persons who are attracted by and enticed into dabbling into the role of an agent or intermediary in petroleum dealings today – a mindset and mentality which essentially views the petroleum trading business as the ‘cash cow’ path to instant financial riches, and one which requires no deep learning or knowledge set to attain it, no long experience, and no hard work, but could simply be accomplished merely by passing around a few copied or even forged but never verified “documents” on the Internet! An underlying mindset and mentality of get-rich-quick-through-the-intermediary-work-without-work-or-study, which, though grossly misguided and totally erroneous and misinformed, pervades the broker network on the Internet – and bespeaks of the kind of unbelievable unrealism, unreal mentality and difficult-to-comprehend attitude often witnessed among a good many Internet brokers and agents operating in the international petroleum trading market today in terms of the frequent presentation one sees on their part of offers of business propositions or demands that are often impracticable, totally unreal and unrealistic, seemingly mere day-dreaming than serious, clearly divorced from simple reality, and completely contrary to all time-honored, well-established norms of the trade and the normal ways of doing business!

H. How Pure Greed Blinds & Hoodwinks People into this Doctrine

It is a mindset and mentality that, though rooted in the Sam Nelson doctrine, have their most primary and powerful impetus in one fundamental factor – sheer human GREED and FANTASY or MYTHOLOGY! Many times, mainly consumed by the false thought of becoming “super rich” overnight out of the blues from an oil deal, many of such brokers are found to be innocently and naively trying to close a deal for someone who they believe, or merely hope, to be real, but who is, in fact really not. But oftentimes, they are too blinded and overcome by the false belief in their pipe dream of becoming “super rich next week or next month” overnight by virtually doing nothing, or too proud or conceited, to simply accept or concede that such beliefs and procedures that they present are simply incorrect or impracticable, and so they refuse to change their ways and continue along the same futile path of wasting their time and the precious time of others, for months and years still trying to push plainly unworkable deals – until, perhaps, it finally begins to dawn on them that for so long no deals have been closed, or are likely to be closed, and not a dime of income has been, or is likely to be, earned!

These words of cautionary alarm and distress by a vastly experienced and successful 35-year veteran of the business, Robert McAngus, the Managing Partner/CEO of the international conglomerate, Robert McAngus Group, concerning the escalating greed and demands for unrealistic levels of commission fees he had observed from Internet agents and brokers, seem to hit the nail squarely on the head:

“Having been in the oil business since 1976, many years prior to the birth of the internet and Skype, I feel I have the practical experience and the hands-on management knowledge and skills required to try and set some of the misunderstandings [held by brokers and intermediaries about what they should be paid] right,” as he strongly advices the brokers and agents that, having come from the old school, he would strongly ask that they always “THINK THE DEAL THROUGH. If you as a fresh-faced young broker or a grizzled seasoned veteran, take the time to think about the process, I am sure that you will realize that this industry requires a lot of hard work and effort, so rather than just pass the deal from your friend Joe, along to the next broker friend, do some dam work and find out if the deals [are] real or not, and try to earn your commissions.”

I. Don’t Even Try Your Hands at It Until You’ve Had the Requisite Education, Training, and Experience

Divide Papa, the noted expert in modern international trading procedures, somewhat debunking the Nelson doctrine of get-rich-quick-without work-or-study, elaborates:

“[If] you want to become a Doctor or Accountant or Engineer,” he notes, reminding us of the way things have always worked in the real world, “you must [first] study and go to school for may years. Then obtain experience. You want to become a professional intermediary Buyer/seller, the same ideal applies – 2/3 years is the learning, obtaining the experience cycle, and after studying, many will give up trying. That’s how difficult this business is. But in return – if you close even just ONE single large deal – you will make a small fortune. You will make a life time of earnings on one deal. If you learn and study well your chances to close one deal is an even 50/50. [However], if you trade without study, your chances of closing a deal is ZERO. There is no 100% study applications in this business.”

Papa adds that any persons who are acting as import/export intermediaries in world petroleum deals, but have NOT first done the requisite studies, or fail to apply the appropriate doctrine of trading that’s followed by credible practitioners and experts, are virtually doomed to failure, guaranteed to close no deals or to make even a dime in income. And such persons, he asserts, should just rest assured that at least 99% of them “have no idea on what they are doing and will never close one deal even in 50 year of trading with silly procedures like LOI, ICPO, BCL, POP, etc. The net is full of silly ill-informed intermediaries who think they are trading when, in fact, all they’re doing is trading in nothing – just wasting time.”

SUMMARY

To summarize, the central point of this essay is that – whatever may have actually been, or is, the causal source for or genesis of it, whether it is traceable to Mr. Nelson’s book, or to the new ethic of the Internet and the Internet generation, or some other unidentifiable corrupting or misguiding influence, or whatever else – literally nothing could be more wrong-headed, more misleading, misguided or unfortunate for the international petroleum marketing business today, or any Internet broker and agent who operates or want to operate in it, than adopting or buying into the above-described doctrine of fortune being made as intermediary in petroleum trade deals overnight, without work or efforts or education, which is widely admitted to be the underlying prevailing mindset operating among many of today’s Internet brokers and agents. In fact, to put it even more starkly, the central point that is made here is that nothing could be more cruelly ‘Joker Broker’ like – i.e., more negative or despicable, more unreal and unrealistic, more damaging or destructive, and counterproductive – to the average broker’s very own best interests and to his best chances of ever finding success in the business or ever landing any sales, closing any deals or making any income – than for a broker to operate under this kind of thinking and mindset – a mindset that is completely false and wrong, totally mistaken and misleading, unrealistic, unattainable, and absolutely contrary to and devoid of any realities and all norms of doing business..

Put simply, in terms of world oil deals, it is this innate belief in the above-described doctrine and mistaken thinking concerning the actual nature and realities of international trading and what ought to be the proper role of the commission intermediary in it that is generally held by the modern Internet intermediary, consciously or unconsciously, deliberately or otherwise, that is fundamentally the single most critical element which account for why most commission intermediaries fail as agents and generally do not close any deals or earn much income, for months, even for years of involvement in the business. And, what is more, it is this unfortunate innate erroneous belief that is held by them, that has been the most fundamental critical element which account for the terrible image of the modern Internet commission intermediary in today’s petroleum marketing business, and the horrible image and notoriety with which they are generally viewed.

And this is so for very good and readily understandable, and, in large part, justifiable reason!

Why so? Simply, because to operate in the business based on such a wrong-headed doctrine or mindset, or such misguided thinking, by any one at all, directly leads one, as it has with the intermediaries involved in the oil business, astray, leading them to the wrong approach and wrong mindset and procedures for the business, and therefore to undesired results and to failure and not being able to close oil trade deals, or to earn commission income from their involvement in the business.

An apt and excellent word of knowledge by which to conclude this essay is perhaps this one offered by one noted expert and author on the international trade intermediary, “There are no short cuts in this business [of trying to work as a trader or an intermediary].”

Or, to put it perhaps even more lucidly still, I might myself add this: “Either trade with the correct philosophy and approach, or fail woefully if you try to trade otherwise!” As an intermediary (or trader), those are your ONLY two stark options and certain results, and none else!

FOR A FOLLOW UP

WISH TO FOLLOW UP ON GETTING A CRUDE OIL OR PETROLEUM PRODUCTS SELLER OR BROKER WITH WORKABLE, REALISTIC PROCEDURES THAT A CREDIBLE BUYER CAN READILY ACCEPT? Please see the instructional information in the author’s resource box below

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Original article by Benjamin Anosike, PhD

How to Convince a Home Owner to Agree to a Short Sale

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You’ve found a great property you’d like to invest in, the owner is motivated because he is in financial trouble, he’s ready to deal. Sounds like the perfect situation for you, but what if the seller is stuck on a price that you know is too high for the market, because that is what he owes on the house?

That’s when you need to come armed with knowledge about a short sale, and can clearly explain why a short sale might be to his advantage.

Most home owners that are trying to unload property, because they are behind on payments, or other financial distress, have probably never heard of a short sale. Explain to your homeowner that he has an option, that you can only offer him this much money, but maybe his bank will take the offer and relieve his entire debt, if he applies for a short sale.

Of course this is where the questions will start. How do I request a short sale? Why would my mortgage company agree to that? How does this help me? Why should I sell to you for such a low price?

The first question is going to be slightly different for each mortgage company or bank, but your best advice is to ask him to call his lender and request a short sale packet from their loan mitigation department. If he’s uncomfortable doing this, you may want to offer sitting in with him on the phone call, to make sure he asks for the right thing.

Explain to your home owner that in these financial times, most mortgage companies are overwhelmed with foreclosure property they cannot sell fast enough, and that they are willing to work with the home owner to keep the home out of foreclosure, which also saves them the cost of legal fees and paperwork involved in a foreclosure. Make sure the home owner understands this is not a guarantee that they will agree, but it may be his best option, and may be his lenders best option. Offer to assist him with any paperwork, he’ll probably be relieved to have some help.

The home owner needs to understand that by agreeing to a short sale, he may be able to have the balance of his mortgage forgiven, and he will be free of the burden of the mortgage payments, and not have to endure the foreclosure process. Most people really want to pay off their debts, and if he is like most people this will make him feel much better than foreclosure. Don’t hide the fact that this could have detrimental affects on his credit score.

Why should he sell to you for such a low price? You know this one. That is all the house is currently worth on the market. If he’s not convinced, you may need to get a broker’s price opinion to share with him, or show him prices of recent sales in his neighborhood.

While a short sale may not be for every distressed home owner, if you educate them, they will be more accepting of trying a short sale.

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Original article by Jennifer Bland

How Scenario Analysis Helps Measure Risk When Real Estate Investing

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Scenario analysis is used by real estate investors and investment property specialists because it provides a good way to measure risk when evaluating real estate investments.

What is scenario analysis? It involves estimating a range of variables that will have the greatest impact upon the likelihood of an investment performing according to an investor’s minimum expectations. Rental income, for instance, is subjected to scenario analysis when the analyst wants to gauge investment property performance based on various rent scenarios. In other words, how well does the property perform in the event rents decline or increase?

Scenario analysis typically considers three scenarios. In this case, we will assume that our scenario analysis is intended to explore what influence changes to rents would have on property performance.

  1. Worst-case – if rents decline or do not change at all
  2. Most-likely case – the most realistic rents that can be obtained
  3. Best-case – rents beyond our wildest dreams

Assume, for example, you are evaluating a rental property consisting of five units rented at $900, producing $54,000 annual rental income, and resulting in a cap rate of 6.23%. Though you are interested, you feel that the cap rate is too low (you prefer a cap rate of 7.0%). The seller will not drop the price (which would raise the cap rate), so you are faced with a dilemma to either pay the price (against your better judgment) or walk away.

This is where a rent scenario analysis can help. Rather then making a decision blindly, you can explore the influence that various changes in rent would have upon performance. In other words, at the very least, you can see what rents would have to be collected to achieve your cap rate, and whether they are likely or pie-in-the-sky.

In this case, you would consider all three scenarios: worst-case, most likely case, and best case. If your desired cap rate were attainable within the first two scenarios, it would indicate that the property’s current rents are low and it does provide some “upside potential.” So you might want to pay the asking price confident that you can increase rents and thus improve the property’s performance. Otherwise, if rents would have to be raised beyond your wildest dreams to attain your cap rate, you might want to walk.

How do you construct a rent scenario analysis? You can use a spreadsheet or purchase a real estate investment software program. Just remember what it is you want to achieve. You want to see the outcome on essentials like cash flow and rates of return based upon a range of rent scenarios. You might be amazed what you uncover about the property.

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Original article by James Kobzeff