Fire Sale E-Book

Philip McKernan

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 484

Veröffentlichungsjahr: 2010

Beschreibung

The ads are everywhere. US real estate at rock-bottom prices. Posh homes in gated communities devalued 50% from a year ago. US real estate agents with nowhere to go in their own backyard are targeting Canada and other countries to attract buyers to the land of the foreclosed and the home of the bushwhacked. As the US housing market remains in crisis and foreign currencies increase in strength relative to the US dollar, foreign investment into real estate in America is reaching new highs, particularly in the sunbelt states. The opportunity to invest in these properties, either as an investment property or a vacation home, is made even more attractive in light of the record number of distressed properties (AKA foreclosures) on the market or in the pipeline due to high levels of unemployment in the US, high consumer debt, and ongoing fallout from the subprime crisis. But what does "opportunity" really look like? What due diligence must an investor do to buy with confidence? What are the pitfalls? The legal and tax considerations? While the property and price may look good on paper, how can you ensure that your investment is a sound one? Philip McKernan and his crack team of experts teach you everything you need to know about investing in distressed properties in the United States, including sourcing distressed properties; building the right team of real estate agent, finance expert, lawyer, and accountant; understanding the tax and legal issues; and having an exit strategy. Make sure you're getting the best deals possible and avoiding any nasty surprises. Be prepared and aware, with Fire Sale: How to Buy US Foreclosures.

Leseprobe

Table of Contents

Title Page

Copyright Page

Acknowledgments

Introduction

What are you going to do about it?

Education cultivates confidence and confidence leads to action

PART 1 - What Distressed Property Is and How to Buy It

FUNDAMENTAL 1 - Learn to Properly Identify a “Distressed Property.”

What Causes Distress

Banks as the New Volume Seller

Resist the Temptation to Think You’re Different

What’s Behind the Discount?

So, There’s Money to Be Made

FUNDAMENTAL 2 - Understand the Fundamentals of the US Foreclosure Process.

Foreclosure Defined

The Homeowner Has Rights

Foreclosure Auction

Size and Immediacy

The Big Picture

Myth Buster

FUNDAMENTAL 3 - Commit to the No. 1 Rule.

3 Ways to Buy

To Review

FUNDAMENTAL 4 - Look for Local Market Data.

Think About It

Aim for Relevance

5 Market Fundamentals

An Extra Word on Vacancy Rates

More Market Facts

FUNDAMENTAL 5 - Avoid the Snake-Oil Salesman.

Seminar Fakes

Lender Scams

Housing Rip-Offs

Know the Sure Signs of a Housing Rip-Off

Questions to Ask

FUNDAMENTAL 6 - Recognize That a Bad Area in the US Is Very Different From a ...

Define Your Bad Area

Be Real

Know What You Need to Know

Weigh Risks and Returns

FUNDAMENTAL 7 - Look for the Stability of a Good Neighborhood.

The Benefits of Market Stability

What’s Your Investment Plan?

A Final Word of Caution

FUNDAMENTAL 8 - Choose Your Exit Strategy Before You Make the Deal.

Identify Your Exit Strategy

A Closer Look at the Wholesale and Fix-and-Flip Options

Pick Your Partners Carefully

Choose an Exit Strategy That Makes Money

FUNDAMENTAL 9 - Know Your Financing Options.

Portfolio Loans

Private Money

Leverage Your Canadian Successes

FUNDAMENTAL 10 - Become Knowledgeable About the Real Estate Cycle.

What Is the Real Estate Cycle?

Boom, Slump and Recovery

Recognizing Cycle Shifts

FUNDAMENTAL 11 - Find the People Who Can Help You Find Foreclosures.

The Not-So-Secret Way to Find Great Real Estate Deals

Understand What an Agent Can Do for Your Business

Know How to Get Their Attention

Beyond the REO

Check Out the Wholesaler Market

Double-Check the Wholesaler’s Numbers

A Word About Accents

Deal Flow

A Recipe for Success

FUNDAMENTAL 12 - Benefit From the 5 Profit Centers of Real Estate.

Natural Appreciation

Forced Appreciation

Positive Cash Flow

Mortgage Reduction and Leverage

Tax Deductions

FUNDAMENTAL 13 - Be Wary of What a Full-Service Real Estate Investment Group Offers.

Good Full-Service Real Estate Groups

Bad Full-Service Real Estate Groups

The Real World - Performing Due Diligence

Cash-Flow Statement

And the Final Number Is . . .

Be the Master of Your Ship

PART 2 - Renovations and Management

FUNDAMENTAL 14 - Work Smartly With Contractors and Subcontractors.

5 Common-Sense Rules

FUNDAMENTAL 15 - Weigh Reno Needs Versus Nice-to-Haves.

The Kitchen: Put the 3 E’s to Work

Bathrooms

FUNDAMENTAL 16 - Dial Up the Intellect (Dial Down the Emotions).

How Much to Spend

Exit Strategy

Look Around. Ask Around.

FUNDAMENTAL 17 - Do the Big 4 Renos on a Rental Property—Now.

Make Sustainability a Fundamental Priority

The Big 4

FUNDAMENTAL 18 - Get Everything in Writing.

The 6 Golden Rules of the Written Contract

How to Handle Contract Changes

Keep It Simple

FUNDAMENTAL 19 - Make Curb Appeal Count.

An Exterior Makeover

FUNDAMENTAL 20 - Run If You Spot Any of the Top 3 Reno Red Flags.

Make Sure Your Project Is Efficient

Keep the Project Focused on What’s Effective

Stick to Economical Options

The Top 3 Reno Red Flags

FUNDAMENTAL 21 - Hire the Right Property Manager.

Zero In on Excellence: 7 Questions to Ask

FUNDAMENTAL 22 - Make Money by Delegating to Your Property Manager.

Put Your Money to Work

Professional Property Management Pays for Itself

FUNDAMENTAL 23 - Communicate With Your Property Manager.

Get Your Communications Plan in Place

Stick to Business

Use Technology Wisely

FUNDAMENTAL 24 - Be Smart About Rent Collection.

From Delinquent to Delivered

It’s All About the Business

The Real World - Mitigating Your Risks and Going Behind the “Foreclosed” Sign

Opportunity Abounds

Stick to Properties That are Easy to Renovate and Rent

Avoid Those Who Promote a Get-Rich-Quick Approach

Canadian eh?

Be On Your Guard With Contractors

Focus On an Area

Take Legal Liability Issues Seriously

Build an Investment Team

Recognize the Value of Patience

Understand That Money Follows Management

PART 3 - Tax Planning

FUNDAMENTAL 25 - Understand How US Tax Laws Can Work to Your Benefit.

An Overview of the US System

The Role of Stimulus

General Guidelines

FUNDAMENTAL 26 - Choose the Right Entity to Structure Your US Business.

Using LLCs for Investment Real Estate

The Canadian Connection

A Different Limited Liability Entity

FUNDAMENTAL 27 - Use Your C Corp to Win the War on Double Tax.

The C Corporation and Tax Rates

Fund Your Next Investment

Deduct Those Depreciable Assets

Get an Automobile Allowance

Minimize Your Payroll Taxes

FUNDAMENTAL 28 - Increase the Depreciation Deduction and Benefit From ...

How Does the US System Work?

The Cost Segregation Study

File a Change in Accounting Method

Single-Family Home Rental Properties

Depreciation Recapture

FUNDAMENTAL 29 - Use the Like-Kind Exchange to Boost Your Tax Strategy.

Audit-Proof Your Like-Kind Exchange

FUNDAMENTAL 30 - Boost Your Cash Flow by Using Your Tax Losses.

Be Active in Your Real Estate

Be Very Active in Your Real Estate

Shift Income to Your Children

Shift Income to High and Low Tax Years

Take Unused Passive Loss Carryovers

Shelter Income With Deductions

FUNDAMENTAL 31 - Obtain Tax Benefits From Your Worst-Performing Property.

Applying the General Rule to a Single Property

Applying the General Rule to Multiple Properties

Invest in PIGs

Modify Your Investment Strategy

The Real World - Limiting Your US Taxation If You’re a Canadian Snowbird

Residence Rules

Renting Your Property

Selling Your Property

Gain: Filing Requirements

Foreign Tax Credit

Estate Taxes

Review US Estate Tax Plans

PART 4 - Legal Planning

FUNDAMENTAL 32 - Cover Your Ass(ets).

The 3 Pillars of Asset Protection

Learn What Asset Protection Is and Isn’t

Perform Due Diligence by Considering the 4 Layers of Asset Protection

FUNDAMENTAL 33 - Develop an Asset Protection Plan and Be Prepared to Avoid Lawsuits.

Case 1: The Vexatious Litigant

Case 2: The Cyclist

Case 3: The Toppling Toddler

Case 4: The Weekend Getaway

FUNDAMENTAL 34 - Counter Threats to Your Wealth With Foresight.

The Top 10 Threats to Your Wealth

FUNDAMENTAL 35 - Draw Up a Blueprint for Your Estate Plan.

A Long-Term View of Asset Protection

Adopt a Plan

FUNDAMENTAL 36 - Expect That Every State Will Want a Piece of Your Pie.

What All Investors Must Know if They Invest in Multiple States

A Lawyer Talks: Investor Joe

FUNDAMENTAL 37 - Steer Clear of Asset Protection Fakes, Scams and Planning Errors.

Land Trusts

Limited Liability Companies

Understand Your Strategy: Probate Versus Credit Protection

Offshore Trusts and IBCs

Homestead Exemption

FUNDAMENTAL 38 - Be Extremely Wary of the “Best” Plans.

The Biggest Legal Strategies That Do Not Work

The Real World - Putting Someone Else’s Legal Experience to Work

The Case for Good Legal Advice

Ready or Not, Here They Come

Get Advice Early and Often

PART 5 - General Information about Investing in the United States

FUNDAMENTAL 39 - Understand Cross-Border Issues.

Overcome Your Citizenship Issues

FUNDAMENTAL 40 - Insure Your Investment.

Find an Agent Who Can Shop Around

Areas of Coverage

Replacement Cost Value and Actual Cash Value

Making a Claim

Location, Location, Location!

FUNDAMENTAL 41 - Carry Insurance Beyond the Property Line.

Medical Insurance

Automobile Insurance

Third-Party Liability Insurance

FUNDAMENTAL 42 - Familiarize Yourself With US Mortgage Financing.

Loan Application

Investor Loans

FUNDAMENTAL 43 - Buy US Real Estate Property With Other People’s Money.

Begin With People You Know

Keep Your Advisors Informed

FUNDAMENTAL 44 - Arrange Pest Inspections for Your Real Estate Purchases.

Subterranean Termites

Carpenter Ants and Bedbugs

FUNDAMENTAL 45 - Decide Whether You’re Buying a Lifestyle or an Investment.

The Snowbird Complication

A Longer-Term Strategy

The Real World - Looking for Investments in a Foreign Location

Desirable Area and Climate

Multiple Employment Opportunities

Infrastructure

Multiple Recreational Activities

High Rental Yields and Demand

Buying Houses Below Replacement Cost

Investing in Different Countries

PART 6 - How to Make Investing Work for You: What You Really Need to Know

FUNDAMENTAL 46 - Apply the Right Mind-Set to Foreign Investments.

Leave a Little Room for Your GUT

I Am Passionate About Real Estate

Conquer Your Fear

Get Your “Whys” in Focus

FUNDAMENTAL 47 - Be Clear About Why You Want to Buy US Real Estate.

Answering the “Why” Helps Set the “How”

Goal Setting Is Harder Than You Think

FUNDAMENTAL 48 - Learn to Believe Big.

Believe Big

Keep It Real: Authentic Goals Matter

Slow Down, Enjoy the Ride

FUNDAMENTAL 49 - Choose Your Mentors Wisely.

Clarity Builds Confidence

The Investor Lifestyle Disconnect

The Real World - Going From Fast Track to Right Track

Off the Tracks

Bridging the Best Asset Class With Honest Goals

Staying Close to Home

Contributors Resource Page

More Support for You!

Mindset for Success

Stay Connected

About the Author

Copyright © 2010 by Philip McKernan

All rights reserved. No part of this work covered by the copyright herein may be reproduced or used in any form or by any means—graphic, electronic or mechanical—without the prior written permission of the publisher. Any request for photocopying, recording, taping or information storage and retrieval systems of any part of this book shall be directed in writing to The Canadian Copyright Licensing Agency (Access Copyright). For an Access Copyright licence, visit www.accesscopyright.ca or call toll free 1-800-893-5777.

Material in chapters 26 to 31 used by permission of ProVision Holdings, PLC.

Care has been taken to trace ownership of copyright material contained in this book. The publisher will gladly receive any information that will enable them to rectify any reference or credit line in subsequent editions.

Library and Archives Canada Cataloguing in Publication Data

McKernan, Philip

Fire sale : how to buy US foreclosures / Philip McKernan.

ISBN 978-0-470-96412-5

1. Residential real estate—Purchasing—United States. 2. Real estate investment—United States. 3. House buying—United States. 4. Foreclosure—United States. I. Title.

HD259.M.63’240973 C2010-903695-6

LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: The publisher and author have used their best efforts in preparing this book. The publisher and author make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. There are no warranties which extend beyond the descriptions contained in this paragraph. No warranty may be created or extended by sales representatives or written sales material. The accuracy and completeness of the information provided herein and the opinions stated herein are not guaranteed or warranted to produce any particular results, and the advice and strategies contained herein may not be suitable for every individual. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential or other damages.

Production CreditsCover Design: Natalia Burobina Interior Design and Typesetting: Pat Loi Printer: Friesens Printing Ltd.

Editorial CreditsEditor: Don Loney Production Editor: Pamela Vokey

John Wiley & Sons Canada, Ltd. 6045 Freemont Blvd. Mississauga, Ontario L5R 4J3

FP

Acknowledgments

“You are who you meet.”

—Philip McKernan

Like any good real estate deal, it takes a great team to make a book like this happen.

We all need people to support and believe in us and Don Loney, my editor at John Wiley & Sons Canada, Ltd., has encouraged and believed in me ever since he spotted me on stage in Toronto and suggested I write a book. I remember being nervous about whether I really could do it. I told Don that I had dyslexia and was really impressed when he remained overwhelmingly supportive of the project. Don represents a talented and committed team at John Wiley & Sons, and I am honored to be represented by such a publishing house.

Joy Gregory, whose talent in crafting a manuscript while simultaneously keeping a team of experts on track, is another gift. We are honored to have had her as a major part of the team.

My wife Pauline and I arrived in Canada three years ago with nothing other than a suitcase and a dream, and reaching that dream would not have been possible without the incredible welcome we received from the Canadian people, and in particular the community of the Real Estate Investment Network. They opened their arms, homes and hearts to us and we will never forget that.

I am lucky to have been able to attract a lot of great people into my life and the team of real estate experts who helped me research and write this book is no exception. I would like to extend a special thank you to Jim Sheils, Brian Scrone, Tom Wheelwright and James Burns who committed to this project when it was just a concept. They are more than well versed in their field—they are good people and I am grateful to have them in my life.

Philip McKernan

Introduction

I can help you make money

“Fear is the assassin of dreams.”

—Philip McKernan

People who pick up a book like this often do so with a healthy dose of skepticism and a wee bit of fear. They’re curious about what the book purports to offer, but they are also afraid that, even with a book to guide them, they will not be able to take any actions that make a difference to the strength of their current or imagined Canadian real estate portfolios.

I want to put those fears to rest by encouraging you to take a different approach to your decision to pick up this book. First, I can assure you that anyone who picks this book off the shelf already knows two very important things:

1. The US real estate market is still reeling from the devastating consequences of an economic maelstrom that’s widely recognized as the Subprime Mortgage Fiasco, and

2. The very fact you picked up this book shows me that you know there’s money to be made by investing in real estate south of the 49th parallel.

What are you going todoabout it?

The only question, then, is what are you going to do about what you already know? Let me introduce myself. I am Philip McKernan and I moved to Canada from Ireland because I saw the great opportunities this country presented to real estate investors and to residents who sought a great quality of life in general. Having lived in Europe for many years and having visited 60 countries around the world, I found myself living in Canada when the US market was shaken by the economic fallout of a global recession that started in late 2008.

Needless to say, living in Canada gave me a bird’s-eye view of an American real estate market experiencing historic upheaval. And let me be clear: while I am not greedy, I know a good opportunity when I see it and there are incredible opportunities in the US market for individuals looking to invest in residential real estate. I also recognize the potential pitfalls that accompany investing in any international market. There is a significant shortage of credible resources about how best to invest in the US. There’s lots of information coming from people with a financial interest in US investments, but remarkably little from impartial third parties.

The fact that I do not sell real estate makes what I have to teach even more valuable! Realizing that, I jumped at the opportunity to build a credible team in the US and to start learning everything I could about what Canadians need to know before they invest in American property.

And by “jumped at” I mean that I set out to meet people who could help me with my personal portfolio and teach me what I could teach others. I pride myself on attracting brilliant people and see this book as a great opportunity to share my new team’s wisdom with you.

I am also wise enough to know that it’s the team that created my success, not me. Using their knowledge and experience, I am now ready to help other people invest in real estate in the United States and avoid making some of the mistakes I made in the early days when I set out to buy property there.

This book is the culmination of my quest to invest in American real estate and help other Canadians do the same. It features the great ideas I gleaned from people like Tom Wheelwright, who is a tax expert and a real estate investor and great speaker based in Phoenix, Arizona; James Burns, a highly-respected asset protection and tax attorney from California; Jim Sheils of Jacksonville, Florida, an author, speaker and international real estate investor; and Brian Scrone, another Florida-based real estate investor who has purchased hundreds of cash-flow investment properties.

With their help, this book delivers the definitive fundamentals you need to buy foreclosed (or distressed) properties in the United States. Its pages teem with the unbiased and reality-based information you need to structure a real estate deal in the US, and all of this great information comes from a group of experts who invest in real estate themselves.

Education cultivates confidence and confidence leads to action

So stop being afraid—and start reading! To simplify a complicated subject, the book has been divided into four general topic areas, beginning with the fundamental question of what distressed property is and how you should buy it, through to renovations and management, tax planning and legal considerations. The book concludes with a selection of general information topics you should know about before you invest in the US, followed by a challenge to enter this market with what I like to call the “right mindset.”

Together, we’ll look at the basics, like what you need to know about the connection between your emotions and bad decisions, the importance of curb appeal and what constitutes a “bad neighborhood” in the US. From there, we’ll move to more sophisticated subjects and review the ways you can maximize depreciation deductions and reduce taxes. We’ll even get into the legal strategies you should avoid. With 95% of all legal litigation cases in the world emanating from the US, you will not want to skip that section.

I know this topic is daunting, and some investors will be put off by the sheer complexity of the different moving parts. I encourage you to persevere. You can learn to invest in US real estate, and it is something you can learn to do well. What we have before us right now is an opportunity that we may never again see in our lifetimes. It is a “perfect storm.”

Now, let’s get started . . .

PART 1

What Distressed Property Is and How to Buy It

“In the absence of clarity, take action.”

—Philip McKernan

Part 1 owes much to the contribution of Jim Shiels, an American author, speaker and international real estate investor who specializes in the acquisition of foreclosures. Jim’s passion for teaching has taken him all over the world. I’m thrilled to be able to share this straight shooter’s advice in this section on distressed properties and acquisitions in the US foreclosure market.

FUNDAMENTAL1

Learn to Properly Identify a “Distressed Property.”

What You Really Need to Know to Identify This Market

It may not be a term you are familiar with, but the whole notion of what constitutes a “distressed property” has strong roots in the real estate investment world. As this whole book focuses on the distressed property market, I want to make sure we’re all on the same page when it comes to understanding exactly what a distressed property is. Simply defined, a distressed property is