The Five Worst (home equity loans) Real Estate Money Wasters

October 30th, 2008 admin Posted in realestate |

By Joshua Ferris

The real estate industry is one of the most profitable industries out there and the ones doing the profiting aren’t always the agents. Real estate brokers and agents are continually bombarded with advertisements promising ways to make more money without having to lift a finger or brand yourself better.

Here’s the thing: No amount of money is going to replace hard work and you won’t have to feed the need for more expendable income if you cut down your costs and only pay for tools and services that give you a great ROI (return on investment).

Here are five products real estate agents/brokers buy that are a tremendous waste of money:

1) Magnetic Car Signs - I’m not sure who ever thought this was a good idea but putting your contact information on the outside of your car serves no useful purpose for two reasons.

First, if you’re driving anywhere you will be doing between 30 - 55 mph and at that speed how many people do you think (realistically) will see your name, recognize that you are a real estate agent, contemplate using you for their real estate needs and then have the ability to write down your number or website address.

Even if you DID find someone who was interested in your service after seeing the sign what are you going to do if you see them following you for two miles in your rear view mirror? Probably try to evade them. Now they think you’re a crazy driver and also don’t have the last 2 digits of your phone number.

Which brings me to my second point: What if you cut someone off or somehow manage to upset someone on the road? Is putting your name, number and other personal info out there in the open really a good idea?

Magnetic car signs are a great idea for contractors, plumbers and similar service companies but you should save your $30 and use it for an Adwords campaign.

2) Third Party Website Vendors - I’m not writing off all real estate website vendors because I do think there are a handful of great website vendors like Real Estate Webmasters but for the most part you are going to overpay and receive a poorly designed, search engine unfriendly website.

In an upcoming series I will be showing you how to build your own real estate website for less than $500.

3) Lead Generation Websites - I’ve tried a few different lead generation websites and actually closed one home sale based on a lead I received but generally speaking you can spend the same $20-$40 that you would spend on each lead to promote your website via PPC (Pay Per Click) and still yield more qualified leads than what you would receive from a lead generation website.

Tip: If you don’t want to get involved in search engine PPC (which can run hundreds of dollars a month if you’re not careful) you may want to consider advertising on heavily trafficked real estate search engines utilizing an inexpensive advertisement subscription model.

4) Newsletter Services with Recycled/Generic Follow-Up Letters - I often receive unsolicited emails from trainers in my Keller Williams office that are generically written (pre-written) newsletters provided by the company they pay $X dollars a month to send them. I don’t read them and the chances are your prospects don’t read them either.

Instead, sit down and write (or pay someone to write) a custom list of newsletter emails that relate directly to your lead’s needs. For example, say a lead inquires about active adult communities in your neighborhood that they’d like to see 12 months from now. By developing your own follow up email set for active adult buyers you are going to have a higher conversion ratio than you would with, say, a generic “Hi Mr. Buyer” and/or recipes email.

Tip: A great, inexpensive service to use for your email follow up with real estate leads is Aweber. It’s used by leading businesspeople in many industries and you can take it for a free test drive by visiting the link above.

5) Recipe Cards and Unrelated Direct Mail Marketing Pieces - I’m all about branding oneself but branding yourself through marketing materials unrelated to your business is not smart branding. If you are going to do direct mail marketing consider what you are asking the recipient to do. Do you want them to bake cookies? Because that’s what a recipe card mailer implies.

Keep your marketing focused by sending real estate market reports and buying/selling tips that will prove useful to your prospect should they need your services.

By holding your real estate expenses accountable you will begin to notice what efforts are generating the most business for you and what’s just burning a hole in your pocket.

Joshua Ferris specializes in Orange County New York real estate including new home communities and townhouses. To discover more about the area, feel free to check out Josh’s Monroe New York guide and locate homes for sale and for rent using his Orange County NY Real Estate search.

Using Cash on Cash Return to Analyze Your Investment Property
By Scott Ficek

Each real estate investor uses their own unique set of ration to analyze investment property purchases. Some of those ratios include: Cash on Cash Return, Debt Coverage, Cap Rate, Gross Multiplier, and Return on Asset to name a few. Your financial goals, risk tolerance, and the type of property you are interested in with ultimately determin Which ratio you use.

Many of the required numbers for calculating Cash on Cash return are easily available in the field or on the fly, many investors will use this ratio as a quick test to determine if further analysis is required. It is an excellent indicator if the property is potentially under priced or a cash cow. Less seasoned investors may want to use a an on-line property analysis tool or property worksheet to do the work for them.

The math equation for Cash on Cash Return is Net Annual Cash Flow divided by Total Cash Invested. Let’s work through gathering the numbers.

First, calculate the Net Annual Before-Tax Cash Flow:

Calculate your yearly income from the property including rent and additional income such as laundry fees.

Total all yearly expenses that you pay as the owner/landlord such as:

Utilities (heat & electricity)

Water/Sewer/Garbage

Snow/Lawn Care

Management/Care taking

Insurance

Subtract the above yearly expenses from your above yearly income to arrive at your Net Annual Operating Income.

Next:

Calculate your mortgage payment using any on-line mortgage calculators. Multiply by 12 to get your annual mortgage payment.

Subtract your annual mortgage payment and your annual tax amount from the above Net Annual Operating Income to arrive at your Net Annual Cash Flow. Make sure you did not include taxes more than once!

Figuring your Total Cash Invested is easy. It is simply amount of money your used to acquire the property think down payment. Most investors will keep the math simplified by NOT including closing costs or other ‘acquisition costs’.

Last:

Calculate your Cash on Cash Return by simply divide Net Annual Cash Flow by Total Cash Invested. This percentage/ratio can used to compare even un-like investments. Looking at it simplistically, this number shows how much of your cash out of pocket is returned to you each year by this investment. Because this is a quick test, it does not take into account any tax implications, depreciation, or appreciation.

I recommend that you run multiple examples to become familiar with this ratio before making a purchase decision using it. You should also become comfortable with what level of Cash on Cash Return you are striving for. Many real estate investors are looking for at least a 24% Cash on Cash Return. Some will not even consider a property unless it produces a ratio of 30% or greater.

Scott Ficek owns and manages almost 30 investment property units from single family to multi-family. He is also a Minnesota MLS Agent with RE/MAX Advantage Plus in Minneapolis and helps new and seasoned investors buy and own Investment Real Estate.

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