Well it is already 13 days into the new year and I am now only making the first post of 2008. I have been doing a lot of analysing and trying to determine the lesson that I should be learning through the situation I mentioned in previous posts. Let me just say that there is a bundle of lessons that I have learned. I am coming back on track with my recovering introvert status but I still have to work on some areas which are taking longer to sort out.
Anyway since this is the first post of the new year I would like to give you a few tips to handle your money bette. Everyone knows these three easy steps but very few people actually put them into action. With prices increasing all the time, saving money can be harder and harder to do.
1. BUDGET – Get one and stick with it! And set aside at least a small portion for savings while you’re at it; savings for your future, your retirement, your education, your vacation, whatever. Head to your local office supply store for planning workbooks or budget sheets to use. Or head to your favorite search engine and type in, “budget planning” for hundreds of sites with articles, free downloads, tips, ebooks and other resources to help with your budget setup and follow up.
2. PLAN AHEAD – Make sure to plan for emergencies and the unexpected, like an appliance break down or garage door malfunction. Even if you can only set aside $50 or so each monthly, place it in an account and earmark it for this “Miscellaneous” fund. Then when things go wrong, and they will – nothing’s perfect – you’ll be better prepared.
3. NON-MONTHLY ITEMS – Work out a monthly payment for items that you don’t pay monthly and set this up in your regular monthly budget. For example, for items like annual home owner or renter insurance, quarterly water bills and automobile insurance payments and annual trash bills, take the amounts and determine what they would be monthly. Then list the items on your budget log and pull these amounts aside, saving them in your account for those purposes. This way, when the bills hit, you won’t be caught off guard and have to scrounge for the payments.
What works well, instead of handling multiple savings accounts for each company owed, is to use index cards and one savings account. Create one index card for each bill. Then simply log the amount you’re setting aside on the card and deposit it into your savings account. Keep the index cards with your savings passbook to remind you what the balance covers. The total of all your index cards should equal the balance in your savings account. (Make sure to create an index card for your regular funds that you are saving each month in step one above and a card for your Miscellaneous fund in step two above).
So next time you get paid, take three giant steps forward. Grab your index cards, follow your budget and invest in yourself and your future. Get a grip on your money handling.
I am JMR and this is My Little Corner on JMRPub.com
Well yesterday I spoke about “Subject To” real estate deals. I have been doing a bit of research and can’t seem to find much about these types of deals in South Africa. The closest I can come is a “Subject To sale” agreement. Basically what that means is that the offer to purchase will be null and void if the purchaser cannot sell his or her current residence.
That is only a subset of what the “Subject To” deal is. Let’s go over a sample situation which would create an ideal environment for a “Subject To” agreement.
“Subject To” Case Study
Debbie and Joe Blume bought their house five years ago for a R100,000 (I will use South African Rands here because, well I am in South Africa 
). After 5 years, they now owe about R95,000, while their house is appraised for R160,000. Both Debbie and Joe have accumulated a credit card debt of about R20,000 since that time, and of course, the interest on that debt is much larger than they really care to have.
Joe and Debbie take out a second mortgage to pay off their credit card debt, take a vacation and buy a new car. With their second mortgage, they do all those things and have about R10,000 leftover, after everything is done. After 7 short months, most of that R10,000 is gone also.
Shortly after this, Joe receives an offer within his company for a higher paying position, but in a different City. Joe and Debbie talk it over, and decide to take the offer and move closer to the job. Of course, deciding to do that, they must now sell their beautiful home.
Like so many of us, when we look to sell our house, we think logically and talk to a real estate agent. The agent informs them that there is little to no equity left in the house, and tells the Blume’s that they will have to pay the agent’s commissions out of pocket. Of course, Joe and Debbie can’t do that, because they ran out of money and are basically living paycheck to paycheck until the new job starts.
Joe starts to worry a bit, because he needs to get to his new job out of Town, within 14 days, and Joe and Debbie would like to spend a few days off together before going to his new job.
Joe starts to think and remembers a “We Buy Houses” sign down the street from their home and runs down and calls the number on his cell phone. After talking with the investor, Joe finds out that the investor isn’t willing to pay more than R120,000 for the house. Hearing that, Joe is mad and upset that such a person can come in with such a low and insulting offer. Besides Joe couldn’t do that deal anyway because the second mortgage they took out last year, places their debt just about what the house is worth.
Getting worried and running out of time, Joe places an ad in the local newspaper advertising the house as a “For Sale By Owner”.
A True Investor
Mostly everyone is trying to low ball him except for one guy who said “he will offer the asking price, so long as he can see the place first”. Feeling excited and curious at the same time, Joe invites the man over.
A couple of hours later, Brad comes over and tells Joe that he is the one who called about the house. Brad tells Joe to explain to him a little about the house and his situation.
Joe spills his guts and describes his dilemma to Brad. After Joe finishes his story about his situation, Brad tells Joe that he thinks he can still offer the asking price if Joe was still interested in selling?
But before they start agreeing any further, Brad says, that as an investor, that his primary motivation to make a profit on the house. Joe and Debbie understand that, so long as their asking price is met and the house is sold quickly.
Brad continues and tells both Joe and Debbie that because of his need to make a profit, he needs to offer an agreement which will satisfy both their needs. Brad continues and says “That offer is what’s called a Subject To” offer. Of course bewildered and confused, Debbie and Joe ask what kind of program is that. Brad simply states, that it’s a program that suspends both their money for the house and his profit on the house for 2 years, while Brad takes over the mortgage payments. Not fully understanding, Joe continues to listen to Brad’s offer.
Here’s what it entails:
- Keep the current mortgage in place for 2 years, at which time the house will be sold, and Joe’s originally asking price will be met, plus 5% of whatever profit is made by Brad
- An escrow account is setup and paid by Brad to ensure full integrity of his contractual agreement with Joe and Debbie
- The property is claimed over to Brad which obligates Brad to continue making the existing payments to the escrow account. The deed will stay in the attorney’s presence until the deal is fully obligated by Brad in 2 years
- Brad relieves Joe and Debbie of the monthly debt for the mortgage payment so they can move on with their life
- Brad offers to pay closing cost and 2 months of mortgage payments to the escrow account to solidify his offer and his intentions to make good on the contract
After discussing the deal with each other and realizing that their options and time are running low, both Joe and Debbie agree with Brad over the details and sign over the deed to Brad via the attorney.
Brad then quickly rents out the house to cover the mortgage payments and manages the house as a rental.
Two years later, Brad sells the house for R210,000 and pays R160,000 dollars to Joe and Debbie’s mortgage company, plus sends Joe and Debbie a check for %5 of the R50,000 profits, which is R2,500.
Everybody wins!
So that is the kind of “Subject To” deal that I am thinking of. If you have any comments about this type of deal then please comment on this post so that we can discuss it.
I am JMR and this is My Little Corner on JMRPub.com
I was reading about something recently which I wanted to get some comment on. This is “Subject To” real estate deals.
“Subject To” real estate financing is fairly new on the real estate investing scene, mainly because many investors don’t know what it is.
“Subject To” financing actually can be a win-win situation for both the seller and the buyer/investor if both parties understand their obligations to one another. The seller usually gets to sell his/her property at the asking price which was originally sought, and the buyer/investor usually gets the property with very little money down, if any, while not having to qualify for any bank loans.
We know, that traditional real estate investing is mainly about buying low and selling high, and making a profit from that difference, usually over time. There’s absolutely no secret to that. While doing it this way, of course, you would incur all the paperwork and everything else that goes along with buying and selling a home like paying all the transaction fees that are involved like commissions, closing costs, title, recording fees and of course your time. On an average, the whole process usually takes a month and a half up to six months depending on the situation.
Creative financing, or “other than” traditional and/or conventional real estate investing, is basically working out an agreement that is fair both the seller and the buyer, without using banks or mortgage brokers. By incorporating this type of financing, the sellers can sell their property for the price they want, and in a timely fashion. The buyer/investor can create an environment for him/her to profit in some manner over a period of time.
By leaving out the usual suspects like title companies, real estate agents and loan officers, both parties stand to make the transaction more profitable for the buyer/investor and more cost effective for the sellers. Specifically this can be real profitable for the real estate investor because in any type of investing, and especially in real estate, it’s about leverage. The leverage is what makes creative financing a powerful, profit-making tool for those looking to start a real estate investing business. The leverage is usually represented by how much money you put into a certain investment, and how much you make from that amount over time. “Subject To” deals make your leverage extremely high, since most of the time you place a small amount of cash, for usually a much lager return.
Stay tuned for Part 2, with an example and questions about the legality of these types of deals in South Africa.
I am JMR and this is My Little Corner on JMRPub.com
New South African Credit Laws
I was supposed to go to a seminar on the new law in South Africa which is supposed to make it more difficult to take out loans. This was cancelled though because of strike action in the general vacinity of where the seminar was to be held. I will write about it once the seminar can be re-scheduled after the strikes are over.
First Time Home buying
Buying your first home can be both thrilling and scary and getting your first mortgage is usually part of the equation. Obtaining a mortgage can be confusing and stressful for many people, especially if this is a new experience. Without a doubt your home, even if it’s a starter home, is and will be, one of the biggest investments of your life. With that in mind it is important to take the mortgage process slowly and not rush or skip important steps.
One of the very first steps necessary in the mortgage process is to decide if you want to go with a direct lender (like the bank) or a brokerage service (or mortgage originator). Dealing directly with lenders can, in most cases be a little bit cheaper because you don’t have to pay a brokerage commission. However, a brokerage service can find lenders that are most suitable to the needs of the borrower and also take care of the many administrative tasks involved in the process. That is what you are paying them to do. Brokerage services also have a bit of pull with the banks and can sometimes organise cheaper rates than if you had approached the bank directly.
It is also important that you pre-qualify for a mortgage. That way you will know in advance how much home you can afford which in many cases will save you time, aggravation and in some instances embarrassment. You can go on the Internet and use any one of the free mortgage calculators available to help you figure out what your monthly payments might look like. Filling out that application and getting pre-approved is a must for any one seeking a mortgage.
You should also ask a lot of questions about anything that you may not fully understand. Find out the difference between a fixed and adjustable rate mortgage. You must also find out about any fees that may be charged to you. Some fees, quite frankly, can be avoided by the educated shopper so shop around. Buying a home is similar to buying anything else, only on a much larger scale. You always want to get the best deal possible and remember to never, ever sign anything that you don’t fully understand.
I am JMR and this is My Little Corner on JMRPub.com
With all the stories of people making tremendous amounts of money in real estate it’s no wonder why so many are looking at real estate as an investment vehicle. It offers more security than the stock market, provides great potential returns, offers tax benefits and let’s not forget; it sounds cool to be ‘in real estate’. Everybody can buy and sell stocks from their phone or computer these days. But real estate, now that’s something else.
One of the challenges that many are faced with is putting up the money to acquire a piece of property. Although in reality this is usually not the biggest obstacle. You might say “Hey, what do you mean, not an obstacle. I would love to invest in real estate, but I just can’t afford to!” The point is that hardly anyone who buys a piece of real estate has enough money in their account to pay for it. That’s where your banker comes in. Let’s face it. Do you know anyone that owns their own home? I mean truly own it? Probably not. Sure, you know a lot of people that have a house to their name, but wait until they get behind on their monthly mortgage payments and you will soon find out who really owns their house. That’s right, the bank. So if these people can use the bank’s money to buy a house, why can’t you?
Now ‘owning’ your own home may sound like a somewhat obvious way to get started in real estate, but it is also a very good way to do so. You might say “Duh…” But apparently this little step is overlooked by a lot of people. Just take a look at how many people are still renting a property instead of buying one. Now of course the relation between rent and housing prices varies from country to country and even from area to area. But wherever you go you will still find people renting, because in their mind “they don’t have enough money to buy a house.” In reality it would be much cheaper for them to buy!
When you rent, you are pretty much flushing your money down the toilet. Of course you are getting the pleasure of living, but the point is you’re not building anything long term. Every dollar you spend on rent is a dollar you will never see again. Whereas if you own your own home, instead of paying rent you would be paying for your mortgage. Even though there is a lot of variety in mortgages these days, the basics of practically all mortgages are more or less the same. Every month you make a payment which consists of two parts: interest and principle. The interest part can be compared to rent. Those dollars are gone with the wind and you will never hear from them again. However, the part of the payment that goes to the principle is money you keep. Every dollar that is used to pay off the principal is a dollar you put in your own pocket.
So if you’re thinking about getting started in real estate and you don’t ‘own’ your own house yet… Change it, and get some experience. It’s a great first step towards building your capital and in many cases, it just makes more sense financially. It can also supply a range of opportunities for accelerating the process of building your net worth. When real estate prices go up, so does the value of your property. Whereas the money you owe the bank, your mortgage, remains the same. In other words this helps you build your net worth. Compare this to people that are paying rent… Their net worth does nothing. However their landlord’s net worth is doing very nicely in this scenario and he or she will probably love you for it. So if you get a warm fuzzy feeling about making somebody else rich at your own expense… Keep renting. If you would rather build your own capital instead… Buy your own house!
Many home owners have accumulated more money through appreciation of their property than by working a full time job for many years. Now before you go out and buy the first property you lay eyes on, don’t forget that some security measures are in order here. As you may or may not know, real estate prices do not always go up, and certainly not in a straight line. Yep, this can be shocker to some people, as well as an ugly reminder for those who overlooked this minor detail in the past. If for some reason you would have to sell your home in a down market, it can be a costly adventure. You wouldn’t be the first to end up with a house worth considerably less than the mortgage resting on it. So make sure to keep some slack. In the long run real estate prices have always been on the rise, but in any cycle there are down periods. By keeping some slack and being patient you will be able to sit through these times and profit from the long term up-trend.
I am JMR and this is My Little Corner on JMRPub.com
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