28 Most Costly Mistakes When buying Real Estate for

an Investment

& How to Avoid Them!

by

Alex Misico

Legal Stuff

Please be advised that the information you are receiving in this e-book is my experience of over 18 years in Real Estate Investing. This information will surely save you a lot of grief and hopefully any set backs that may come from finding the right Real Estate Investments.

This information is NOT a promise or a guaranty that after reading this material you won’t have issues to deal with. I strongly suggest that you build a professional relationship with Realtors, Title Companies, Attorney’s, and financial advisor's to assure you of all your options.

The information contained in this ebook has not been prepared, endorsed, or reviewed by any form of licensed legal professional including but not limited to an attorney. Nothing in this ebook should be taken as legal advice, but instead should act as a useful resource in providing general information that may be useful to members of the general public. You are encouraged to consult with a licensed attorney/lawyer in all legal matters. You should not act, or refrain from acting, based upon any information in this ebook. This information does not, and is not intended to, constitute legal advice.

Mistake # 1

Not getting started soon enough!

I know this seems “How can this be a mistake?” We been taught over and over in our lives to analyze things carefully.

Well after interviewing thousands of real estate investors, ages 18 to 86, it is amazing to find out that they all say one thing in common. “I wish I had started sooner”.

Now thats not to say they didn't analyze their investments carefully they just didn't over think it!

Solution:

1. Get the right information, read all the books you can, talk to other real estate investors, and make offers.

a. The Internet is one of the best ways to educate your self and in most cases the information is free.

b. Talk to other investors: This is simple, join a local Real Estate Association in your area. You can generally call a local agent and just ask them if there is one in your area.

c. Make offers: This is one of the biggest fears all Investors have trying to get pasted. Do the first deal, it will be the most difficult, but after that they get easier!

Mistake #2

Analyzing property too much, looking for a year and not making any offers!

Stop paralysis of analysis! Just as I mentioned in Mistake #1 do not over think it. If you do you could find yourself missing out on a lot of great deals. While your analyzing the numbers and the neighborhood, someone else is beating you to the offer.

Again, I am not saying that you shouldn't analyze your investment and make the decision you are comfortable with, but what I am saying is that you can over think it so much you end up doing nothing.

Solution:

1. Practice real estate by the numbers. How much is it worth? What are the repairs, and carrying costs etc? Get the information by knowing your “Market Values”

2. Make a decision and move on. Make offers. At least make low ones. The person who makes the most on real estate does it by making the most offers “That’s the secret!” If you are comfortable with your offer, make it!

Mistake #3

Overlooking those bad houses in bad neighborhoods!

Many times an investor will make the mistake of overlooking a house because the house is located in a neighborhood they would not like to live in or the house is not their style.

You have to see through and past your hang ups and see the future value of the home versus the “Market Value!”

Solution:

1. Just because you do not like the house or the neighborhood does not mean you cannot make money with it. Others live and buy in those areas. It boils down to “Market Value!”

2. Learn to flip a home to another investor that may have an interest.

3. Find other investors like yourself and ask what types of homes are they looking for and flip it to them for a small fee. As I mentioned in Mistake #1 join a “Real Estate Association” and network with other agents and investors. Information in this business is like “Gold”

Mistake # 4

Not putting every repair in writing!

Solution:

1. Put every repair bid in writing: This can save a lot of arguments later.

2. What exactly will be done, what is included and what is not and deadlines that must be met.

See the forms at the end of this e-book. These are the forms I use and I hope they can be of use for you also.

Mistake # 5

Paying for a repair or construction job before it is 100% completed!

Solution:

1. Never pay for a job until it is 100% completed! Contractors will challenge this because they generally do not have funds to begin to build or remodel or they do not want to tie up theirs. Remember time is money!

2. Always ask for references. Some contractor will have pictures of their previous project and would be happy to show you their work. Make sure it is their work though! Call the references they provide!

3. Give out as small a draw as possible. This will give the contractor incentive to move to the next phase of the remodeling or construction to get paid. Avoid the temptation that the contractor is 96% done, it’s Friday and they want to be paid. “This is a business run it like one!”

4. Make a written agreement should the contractor not meet the schedule completion date and time that he or she will take a $25, $50, $100 dollar deduction for everyday it not completed . But also mention that should they complete the project ahead of schedule that they may also see $25, $50, or $100 dollar for each day they are ahead of schedule. This makes for a highly motivated contractor to keep on schedule.

Mistake # 6

Paying for a repair or remodeling, even though it is 3 weeks late!

Solution:

1. Time is money! If your home is not ready to show, sell or rent because a contractor is late, then you are loosing money! Set a schedule and keep them to it! This is an important question to ask their references, “Did they meet their schedule completion date?” Contractor's are like airlines, people almost expect them to be behind schedule! Don't except that premise!

2. Always put a “per day late penalty” in your contract, be fair. Make a written agreement should the contractor not meet the schedule completion date that he or she will take a $25, $50, or $100 dollar deduction for everyday it is not completed . But also mention that should they complete the project ahead of schedule that they may also see $25, $50, or $100 dollars for each day they are ahead of schedule. This again will make for a highly motivated contractor to keep on schedule.

Mistake # 7

Spending too much money on a house that you bought to fix up

and sell or rent!

Solution:

1. Do not rehab a house without knowing the “Market Value!”. The association of Realtors says about 90% of most buyers emotionally decide whether to buy within 1 ½ minutes of arriving at the curb. Therefore, you should spend time and money on the curb appeal and of course kitchens and bathrooms. Do not spend unnecessary dollars. Look for the house with “on” colors.

2. Your total costs including your rehab costs should only be about 75% of your net selling price. Don’t forget to all your expenses including carrying costs, interest, insurance, and paying yourself for your time.

Here is a saying you hear from many real estate investors: “I made $10,000 on that house”, but they forgot to mention that they worked 20 hours a week on it for a year, thereby earning $8 an hour. Don’t fall into that trap! They also didn't include the interest they could have made on their money if they simply would have kept it in the bank. Include all your expenses!

Mistake # 8

Running out of cash and the bills keep coming!

Solution:

1. Budget for at least 15% over cost so that you are prepared for the unforeseen issues that might arise. Electric, gas, phone, sewer, water, mow lawns, etc. Trust me you will have some unexpected expenses. However, the more you do the better you will get at knowing what to expect.

2. Some other expenses may include escrow fund for taxes, insurance, and unforeseen emergencies. Be conservative and always keep a cushion.

Mistake # 9

You pay too much for repairs!

Solution:

1. Break down every repair bid, whether it is for your house, car, computer, etc., (Example: if a paint job is bid at $900)

2. Find out how much the materials cost. ($100)

3. How many hours of labor will it take, (1 day?)

4. How many people (2 people)

If it is 2 people for 1 day… that is $800 divided by two people for an 8 hour day, that is $50 per hour and that would seem high for a painter!

“Break every bid down”

Mistake # 10

You find a good property, put it under contract and find out that it is not a

good deal and you are stuck and bound to close or be sued.

Solution:

1. Always put contingencies in your purchase agreements. Depending on how desperate your seller is, you may be able to get a whole host of contingencies in your purchase agreement. Some contingencies could be (1) “Buyer reserves the right of refusal should the appraisal not support the selling price” , or (2) “Buyer reserves the right of refusal should his or her partners disapprove”.

2. Put contingencies for final termite inspection or other hidden facts that need to be inspected.

3. Offer option consideration money but do not make it over $1,000 dollars. So if for some reason you do not perform then you are out that money. Cheap security!

Mistake # 11

Not having the proper insurance. Real Estate is Risky and you may

have legal problems and legal questions.

Solution:

1. Be properly insured! Never buy a property without Title Insurance and good liability insurance. Make sure you have the right title, liability and legal insurance.

2. Make sure that your property insurance is covered with a landlord policy. This could cost you a lot of headaches if you do not.

3. You may want to consider having a legal professional go over your contract if you are not 100% sure. It may be money well spent.

Mistake # 12

You miss out on special loan programs!

Solution:

1. Ask your local and state housing authorities and even local banks if they have special loan programs and how you can qualify for them. Also many banks have a Community Reinvestment Act (CRA) Department that will provide you with better financing then you will typically find it you are operating in low/moderate income neighborhoods.

2. Try to find a seller who would be willing to sell on “owner financing terms” or will to do a Lease purchase with you.

Mistake # 13

Selling or Renting Backwards!

Solution:

1. Never sign a contract to sell or lease a property without knowing that the prospective buyer or renter is pre-approved. Its close to 45% of all real estate contracts fail because the buyer cannot get a new loan. And in this economic times its even going to be harder to get someone to pre-qualify.

2. Either talk to their mortgage banker/broker or have them visit one of your professional team brokers. Get a letter in writing that they are pre-approved. This means that the buyer has been pre-approved and submitted their paperwork and ready to receive a contract, appraisal and title work.

3. Be sure they are pre-approved verse pre-qualified. This is a big difference. Pre-qualified only means that the mortgage broker took the information given them on the buyer’s income and debt. This goes the same for renters.

4. Screen them before you promise them a property, sign a lease or take a deposit.

5. I never sign a contract and tie-up a property and my time until the buyer or the renters are pre-approved.

Mistake # 14

Not having a plan!

Solution:

Every successful person and business has a plan! You need:

1. Have a long term plan (1 year, 5 year, 10 year, 20 year). This isn’t as hard to do as you might think. If you set goals, these goals have to have a beginning and an end. Create your own work sheet and develop a plan you feel you can accomplish. But place goals that maybe you will not accomplish. This goal can be adjusted once you find your level of confidence. So a 1 year plan may include making 24 offers and closing on at least 5 for the entire year. As I stated you adjust it to your level of confidence.

2. Short term goal (this week, month, 6 month). These are goal to insure you that you have made progress while doing your long term goals. So in the example above you may make a goal of making at least two offers per month.

3. Set your goals and “Keep track of yourself”.

Mistake # 15

Not charging the tenants for damages!

Solution:

1. Make sure that you put in your lease that tenants are responsible for damage’s done by them and/or their guests. Always get a reasonable security deposit.

2. Always give the tenant a “Move in and Move out” form to fill out before the move in. (see forms at the end of this e-book)

3. Unpaid damages become unpaid rent. If rent is not paid you should begin eviction.

Mistake # 16

Not screening your tenants and having to evict them!

Solution:

1. Screen every potential renter by running a credit check and criminal background check. This expense can be a fee you charge the potential renter if they fill out the Rental Application form. Generally you can ask one of your team mortgage brokers to please pre-qualify your potential renter because you hope to sell the property to the renter once the become qualified. This doesn’t mean you will, but it a possibility should you wish to dispose the property at a later date by offering your tenant a chance to purchase it. Great exit plan!

2. Check with 2 previous landlords and verify employment and make the renter pay for it also in their application fee.

Mistake # 17

Letting your business run you: Bookkeeping, Tenants, Potential

Buyers, Phone Calls “All keep you stressed out”

Solution:

Run your business….do not let it run YOU!

1. Set up a smart system to handle your calls, bookkeeping, renting, and selling processes. This can be accomplished by simply having your team of professional available.

2. Set policies and procedures then follow them! I have no decisions to make. Real Estate is a simple business. Run your business like all successful business. You can search the Internet for several great plans to simplify you business and keep the stress to a minimum.

Mistake # 18

Spending too much time talking to tenants, worrying about repairs,

doing paperwork and making very little money!

Solution:

1. Your time as a real estate investor is best spent looking for good deals. Once you find a good deal, then you keep it, lease option it, buy, fix it and sell it.

2. You need to organize your business so that you can spend your time on what makes you money.

3. Keep track of your time and study how you use it and what makes you money. Stop doing the things that do not make you money or delegate them to others.

Mistake # 19

Cash flow from your rental properties is not quite enough

Solution:

1. Always do market analysis of what the going rent is in your area before you think of buying property. This is part of “Knowing your Market”. Do not be afraid to raise rent once a year because your cost will rise also. It important you tell the tenant that should your expenses rise that the rent will also. Like taxes, insurance, wages, extensive repairs, and for professional help. Do not run your real estate business like a charity event.

2. Raise the rent in small increments so its not shocking to the tenants.

3. Try offering free gifts once the rent is raised. Like a $25 dollar certificate to go out and eat, fill the gas tank, etc.

Mistake #20

You punish bad tenants, but you don’t reward good ones!

Solution:

1. Reward tenants every year! Although you might think I’m schizophrenic by telling you to raise the rent and then reward tenants for staying, you will see that it goes a long way to making the tenants happy and increasing the value of your property.

2. Say you reward them by installing a ceiling fans, new screen doors, brass door knockers, or even clean the carpet as a reward for paying rent on time. Being good tenants or renewing their lease is the tenants choice.

3. Always tell the tenant when they move in that there are rewards each year for payment on time and maintaining the property in a normal use.

4. Reward good tenants and get rid of the bad ones.

Mistake # 21

You hate being a landlord because the tenants are always bugging you

with their problems!

Solution:

1. Show the tenant how he or she can at some point take ownership of the property with a Lease Option.

2. Put the tenant in charge of minor maintenance and you maintain the major. Tenant takes care of everything but the roof, furnace, electrical, and plumbing.

3. Make sure you have two separate contracts when doing Lease options. (see the form section of this e-book for the forms)

4. Talk to your professional team “the attorney” to assure you of your legal rights.

Mistake # 22

You hate collecting rent or many of your tenants do not pay rent!

Solution:

1. Investigate the idea of putting Section 8 tenants in your homes. This way you can get a check directly from the government. So check out areas that have Section 8 for rentals and Lease option terms. (For more information on what Section 8 rentals are google it on the Internet)

2. Have the tenant make a payment from a direct deposit from their bank or credit union. Maybe give them a small discount on the rent for doing so, or a reward we spoke of earlier at the end of the each year.

3. Express to the tenant how important it is to have the payments in on time. That when it comes time to purchase the property the mortgage broker will have a good 12 months of payment history to report to the lender.

Mistake # 23

You only inspect your properties when there is a problem.

Solution:

1. Inspect your properties every 30 days. If nothing else with a drive by to see how the outside is being maintained. If there is question with the outside, I’m sure you'll have some questions about the inside.

2. Put in your contracts that you will have a yearly inspection on the furnace just before winter and should you have air conditioning that it get inspected in the spring. Also make a note in the contract that all fire alarms will be inspected on a by-monthly inspection should it be warranted.

3. Give business cards to the neighbors and ask if they see any unusual activity to please give you a call. Use discretion.

Mistake # 24

Your rehab house will not sell or rental house will not rent!

Solution:

1. Increase the marketability of your investment. When selling your investment property, remember that the three most important areas are the front of your house (curb appeal), the kitchen, and the bathrooms.

2. Add shutters, brass door knockers, and nice mail boxes.

3. Put fresh paint and open the drapes so the sun shines in when viewing. Rent temporary furniture for the rooms so the tenant or buyer has some idea what they can do. This is called staging the property for viewing, and can decrease the time it remains on the market which is money in your pocket.

4. Some times having fresh bake goods cooking in the oven can give a warm feeling, making the potential buyer or tenant feel at home.

5. Clean windows help.

6. Lower the rent or offer owner financing.

Mistake # 25

Your house will not sell fast enough and you do not want to wait 7 months

to get your money!

Solution:

1. One way to perhaps sell your home quickly would be to have an auction. There are programs that can show you how to sell your home in 5 day’s.

2. Doing creative financing with the buyer to help with the down payment.

3. Find programs that will help the buyer get help with a down payment.

4. Market your property to areas that have investors looking for rental properties.

5. Become a partner with other investors by asking for half the sale price in exchange for a cash flow to them.

Mistake # 26

You negotiated a good cash offer on a nice property, but you left money on

the table.

Solution:

1. To assure you don’t leave a ton of cash at the closing table, sometimes its smart to negotiate the terms with the buyer based on financing. Then after you hear the sellers terms you can ask “What if I paid you all cash, would you take?” This way you have the best chance to get the rock bottom price.

2. Ask for seller financing.

Mistake # 27

You have worked hard on your asset protection program, but it may not work, because you used the term “Asset Protection”

Solution:

1. Never do anything solely for the purpose of asset protection. A really sharp attorney could drag you into court and prove that the only reason (your intent) to set up a trust or a partnership was for asset protection.

2. Always purchase the property with intent to purchase on a personal bases, then later you can quit claim the deed into the trust or some other asset protection.

Mistake # 28

You don’t have enough happy clients or tenants!

Solution:

1. Give everyone more then they expect. You will convert them into long-term clients and long-term tenants.

2. Advertise at apartment buildings.

3. Place ads in the newspapers with fliers.

4. Offer other tenants a free months rent to find you new clients.

Ok, now that I gave you 28 different ideas that will give you a better chance to buy investment property, keep in mind that the most important thing to remember is “KNOW WHAT YOUR MARKET VALUES ARE!”

The next few pages are copies of some of the forms I use. I strongly suggest that you consult your attorney and accountant to have them review these so that you know they will apply in your area and fit your plans. You may also find forms in Office Supply Department Stores.

PROPERTY ANALYSIS FORM

____________________________ ____________________________Contact Name Property Address

____________________________ ____________________________Home Phone City, State, Zip

____________________________ ____________________________Work Phone Schools & Township

____________________________Subdivision

Year Built: ____________ Style: _________________ Color of Home: _____________

# Bedrooms: ___________ # Baths: _______________ # Fireplaces: _________

Garage: Y / N # Cars: ________________ Attached: Y / N

Lot Size: ______________ Type of Heat: _____________ Sanitation: ___________

Taxes: ________________ When Can I Have Possession: ______________________

Asking Price: _______________________ How Long on Market: _____________

Negotiable on the Terms: _____________________________________________________

POINT SYSTEM (Use When Buying)

Poor Average Excellent Seller Motivation 1 2 3Location 0 2 3Terms 1 2 3 Total Score: ___________Price 1 2 3Condition 1 2 3 Only Buy in the 11-15 Range!

RENTAL APPLICATION

UNIT INFORMATION This is NOT a lease or a rental agreement.

The Undersigned hereby makes application to rent Property located at:

Monthly rent $ Lease term

Earnest Money Paid $__________ Credit Check Fee $__________

APPLICANT INFORMATION

Name:_ Date of Birth:

Social Security No: Drivers License #:

Exp. Date:

Name of Co-Tenant: Date of Birth:

Social Security No: Drivers License #:

Exp. Date:

Present Address:

How long at present address: Landlord:

Phone:

Current Rent Amount: Rent Paid Through:

Current Lease Expires:

Previous Address:

How long at previous address: Landlord:

Phone:

Page 1 of 4 (Initial)

OCCUPANTS

Names:

Relationships:

Ages:

Pets:

Year, Make & Model of Car: Color:

License:

EMPLOYER & INCOME

PRESENT PRIOR CO-TENANT’S

Occupation

Employer

Self Employed, DBA

Business Address

Business Phone

Type of Business

Position Held

Name of Supervisor

How Long There

Monthly Gross Income

Page 2 of 4 (Initial)

REFERENCES

BANK REFERENCE:

Address: Phone:

CREDIT REFERENCES ACCOUNT NO.ADDRESS PURPOSE OPEN/CLOSED

PERSONAL REFERENCES ADDRESS PHONE TIME KNOWN OCCUPATION

NEAREST RELATIVE ADDRESS PHONE RELATIONSHIP

Have you ever filed a petition for bankruptcy? Y / N

Have you ever been evicted from any tenancy? Y / N

Have you ever willfully and intentionally refused to pay any rent when due? Y / N

Page 3 of 4 (Initial)

PLEASE READ THIS CAREFULLY AND SIGN THIS APPLICATION

The purpose of this application is to determine whether I qualify as a tenant. If my application is approved, the Landlord and I shall sign a written lease or rental agreement. The landlord and I have no rental agreement until the time that the lease or written rental agreement is signed.

I have paid the earnest money deposit and credit report fee indicated on this application. The earnest money deposit will be applied to my first month’s rent if the Landlord enters into a lease or rental agreement with me. If this application is approved, and I fail to enter into a lease or rental agreement, the earnest money and any subsequent payments may be retained to compensate the Landlord’s cost and damages. The earnest money and any subsequent payments will be refunded to me if this application is rejected. The credit report fee is nonrefundable.

My performance under any lease or rental agreement that I may enter into with the Landlord may be reported to a consumer credit reporting agency.

I agree that the Landlord may terminate any agreement entered into in reliance on any misstatement made above.

I DECLARE THAT THE FOREGOING INFORMATION IS TRUE AND CORRECT, AUTHORIZE ITS VERIFICATION AND THE OBTAINING OF A CONSUMER CREDIT REPORT.

Signature of Applicant ____________________________________ Date __________________

Signature of Applicant ____________________________________ Date __________________

FOR OFFICE USE ONLY Date Received ____________Accepted

Denied Income Credit Report

References Evictions Rental History

Other Notified

Page 4 of 4 (Initial)

INVENTORY CHECKLIST FORM

Resident’s Name: Move-In Date:

Property Address: Move-Out Date:

Date and Number of Keys/Openers Delivered to Resident:

MASTER BEDROOM BATHROOMWalls/Ceilings Walls/Ceilings Floors Floors Windows Light Fixture Screens Sink Window Covering Toilet Light Fixture Tub/Shower

Medicine Cabinet BEDROOM Window Walls/Ceiling Window Covering Floors Exhaust Fan Windows Towel Racks Screens Window Covering BATHROOMLight Fixture Walls/Ceilings

Floors BEDROOM Light Fixture Walls/Ceiling Sink Floors Toilet Windows Tub/Shower Screens Medicine Cabinet Window Covering Window Light Fixture Window Covering

Exhaust Fan BEDROOM Towel Racks Walls/Ceiling Floors OTHER Windows Screens Window Coverings Light Fixture

LIVING ROOM SERVICE EQUIPMENTWalls/Ceiling Air Conditioner Floors Furnace Light Fixture Windows Page 1 of 2 _______(Initial)

UTILITY AREAWindow Covering Floors Screens Walls/Ceiling Fire Place Washer Dryer DINING ROOM/AREA GARAGE/STORAGEWalls/Ceiling Walls/Ceiling Floors Floors Light Fixture Light Fixture Windows Windows Screens Screens Window Covering

EXTERIOR LAWN/LANDSCAPEWalls Yard Trim Trees/Shrubs

KITCHEN MISCELLANEOUSWalls/Ceiling Door Opener Floors Keys Windows Screens Window Covering Light Fixture Sink Cabinets Range & Oven Refrigerator Dishwasher Garbage Disposal

Tenant has inspected the above premises prior to occupancy and accepts it subject to the conditions and/or exceptions noted above. Tenant agrees to deliver the premises in like condition upon termination of the tenancy, normal wear and tear excepted.

The undersigned acknowledges that the above is the condition of the Property on moving in.

Move In Date:

Resident Landlord

The undersigned acknowledges that the above is the condition of the Property on moving out.

Move Out Date:

Resident Landlord

Page 2 of 2 (Initial)

ITEMIZED CHARGE SUMMARY

Keys/Locks: Unit $_________ Entry $_________ Mailboxes $_________ Other $_________ TOTAL $________

Cleaning: _________ Hours x $_________ Wage = $_________ ; Materials $_________ TOTAL $________

Hours x $_________ Wage = $_________ Materials $_________ TOTAL $________

Carpet $_________ Drapes $_________ Other $_________ TOTAL $________

Painting: _________ Hours x $_________ Wage = $_________ Materials $_________ TOTAL $________

Hours x $_________ Wage = $_________ Materials $_________ TOTAL $________

Unpaid Rent: Dates from _______________ to _______________ + Late Fee $_____________ TOTAL $________

\Utility Bills: $______________________________ Other: $___________________________ TOTAL $________

Note: Amounts followed by an “E” indicate estimated charges. actual charges. Attach copies of all itemized invoices, estimates and receipts to this report.Tenant Forwarding Address: _________________________________________________________________________

Lease Purchase Agreement (I Am Landlord/Seller)

Use this form in conjunction with the Inventory Checklist and Receipt and the Lead-Based Paint Disclosure when you have either purchased or negotiated the control of a home that you would like to lease purchase to a tenant/buyer. Use the addendum to cover any details not already covered in the agreement. Have your attorney review this form before you use it.

Important – No representation or warranty as to legality, accuracy, correctness, or acceptance of the enclosed forms by any State or jurisdiction is indicated. Should you decide to use any of the enclosed forms in your legal affairs, consult with an attorney.

RESIDENTIAL LEASE AGREEMENT

THIS LEASE AGREEMENT, dated _________, is between ___________________________________________, the Landlord(s), the Landlords Successors and/or Assigns of _______________________________________________ and _____________________ the Tenant(s) of ____________ ___________________.

Landlord leases to Tenant and Tenant leases from Landlord, upon the terms and conditions contained herein, the dwelling located in the County of ____________________________ State of _________________________________, commonly known as ___________________________ ______________________________________________________.

1. Lease Term. ________ Months for the period commencing on ___________________________, ___________, and thereafter until ___________________________, ___________, at which time this Lease Agreement shall terminate. Tenant may renew under same conditions for ___________ terms for payment of $__________. This renewal payment shall be considered “additional rents” and are non-refundable to the Tenant.

2. Rent. Tenant shall pay landlord as rent, by check or money order at the address stated above or an address designated by the landlord, the sum of $__________________ per month, due and payable monthly, on the ________ day of the previous month for which rent is due. Rent may be mailed through the United States Postal Service at Tenant’s risk. Any rents late or lost in the mail will be treated as if unpaid until received by Landlord. Tenant further agrees to pay a late charge of $25.00 plus $5.00 per day for each day the entire rent is not received by the Landlord by the ________ of the month regardless of the cause, including dishonored checks, time being of the essence. This increase shall be considered “additional rents” and if rent is received after the ________ of the month and late fees and/or “additional rents” are not included with such payment, rent will be considered unpaid. Any payments received by Landlord will be applied first towards late fees and/or other additional charges, then toward rent. An additional Service Charge of $20.00 will be paid to Landlord for all dishonored checks. If Tenant’s checks are returned unpaid for any reason, Landlord shall have the right to demand cash or money orders on all future payments.

3. Security Deposit. (Circle A or B) A. The Tenant has deposited with the landlord $________________ as a security deposit to reimburse the Landlord for actual damages to the rental unit or ancillary facilities that directly result from conduct not reasonably expected in the normal course of habitation of a dwelling and to pay the Landlord for all rent arrearage or due for premature termination of this lease by the Tenant and for any of the Tenant’s utility bills not paid by the Tenant. The Tenant is liable for any balances remaining unpaid after the Landlord applies the security deposit to such amounts. The Landlord shall not be required to keep the security deposit in a separate account and may commingle the deposit with his/her own personal funds. If the Tenant leaves the premises in satisfactory condition, the Landlord agrees to provide Tenant with a written letter of recommendation.B. Because of the Tenant’s good credit and/or rental history, Landlord is waiving requirements for a security deposit. If the Tenant leaves the premises in satisfactory condition, the Landlord agrees to provide Tenant with a written letter of recommendation.

4. Use. Tenant agrees to use said dwelling as living quarters only for ________ adults and ________ children, namely: ____________________________________________________________________ ____________________________________________________________________________________________________________________________________________________________________and to pay $50.00 each month for each other person who shall occupy the premises in any capacity.

5. Pets. All pets on the property not registered under this Lease Agreement shall be presumed to be strays and will be disposed of by the appropriate agency as prescribed by law. Any pets kept on the property without the permission of the Landlord in writing shall be a complete and material breach of the lease. Type of pets allowed and names (if none, state so): ________________________________.

Page 1 of 4 (Initial)

6. No Assignment. Tenant agrees not to assign this Lease, nor to sublet any portion of the property, nor allow any other person to live therein other than as named in above without first obtaining written permission from Landlord and paying the appropriate surcharge. Further, it is agreed that covenants contained in this Lease, once breached, cannot afterward be performed, and that unlawful detained proceedings may be commenced at once, without notice to Tenant.

7. Prohibitions. Neither the Tenant nor the Tenant’s guests shall:8. install any equipment or appliances that, in the Landlord’s opinion, cause an unsafe condition on the premises;9. accumulate refuse on or around the premises that might pose a health hazard to the Tenant or to the Tenant’s

neighbors;10. allow any activity on or around the premises that would result in an increase in fire insurance premiums for the

premises;11. permit any flammable liquids or explosives to be kept on or around the premises;12. permit on the premises any act that would injure the Landlord’s reputation or interfere with the rights or the quiet

enjoyment of other persons;13. change or install any locks on the premises or in the building where the premises are located; or14. bring any water beds, floor safes, or other heavy objects on the premises.

15. No Waiver. All rights given to Landlord by this Lease shall be cumulative to any other laws which might exist or come into being. Any exercise or failure to exercise by Landlord of any right shall not act as a waiver of any other rights. No statement or promise of Landlord or his agent as to tenancy, repairs, alterations, or other terms and conditions shall be binding unless reduced to writing and signed by Landlord.

16. Vacation or Abandonment of the Premises. If the Tenant removes substantially all the Tenant’s property from the premises, the Landlord may immediately enter and redecorate the premises without abatement of rent, and these acts shall not affect the Tenant’s obligations under this Lease. If the Tenant abandons the premises before the lease expires, all rent for the remainder of the term of the Lease shall immediately become due.

17. Holding Over. The Tenant may, with the Landlord’s permission, continue to occupy the premises after the term of this lease expires without renewing this Lease or signing another Lease for the premises. Such tenancy shall be on a month-to-month basis and subject to the provisions of this Lease except that the first month’s rent shall increase 25 percent from the rent for the last month of the term of the Lease and the Landlord may increase rent on 30 days notice to the Tenant.

18. Utilities. Tenant will be responsible for payment of all utilities, garbage, water and sewer charges, telephone, gas association fees or other bills incurred during the term of this Lease

19. Emergency Access. Landlord has the right of emergency access to the leased premises at any time and access during reasonable hours to inspect the property or, at reasonable times, to show property to a prospective tenant.

20. Repairs. Tenant shall be responsible for all repairs, maintenance, costs, service charges, painting, improvements and additions to the property. Tenant shall take an active role to insure that the property stays in excellent condition. Tenant agrees that he/she has had adequate opportunity to inspect the condition of the property and Landlord makes no warranties or representations about the condition of the property, the improvements, utilities, electrical, plumbing, appliances or the neighborhood. Tenant has the right to paint and decorate the property in his/her discretion within tasteful guidelines. Tenant will not make any major alterations to the property without prior written consent of the Landlord. Tenant is required to obtain all necessary permits required by law before commencing improvements. Any work performed on the premises whether by Tenant or other parties shall be as an independent contractor or agent of the Tenant and not an employee or agent of the Landlord. Landlord will have no right of supervision of the work performed. Tenant further warrants that he/she will be accountable for any mishaps and/or accidents resulting from such work, and will defend, indemnify and hold the Landlord and Landlord’s agents free from claims of any other person or entity. All improvements to the property shall be the property of the Landlord and remain attached and a part of the property when Tenant vacates.

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21. Default. To further clarify the terms of the lease, the Tenant shall make certain that rent is received by the Landlord by the ________ of the month. A notice of non-payment will be served on the Tenant if rent is not received by the ________ of the month, regardless of fault of the Tenant or the United States Postal Service. Notwithstanding the foregoing, the lease will be deemed materially and incurably breached and terminated if the rent and/or any additional rent is not paid by the ________ of any month for which rent is due. The acceptance by Landlord of partial payments of rent due shall not, under any circumstances, constitute a waiver of Landlord, nor affect any notice or legal proceeding in unlawful detained theretofore give or commenced under state law. If Tenant defaults on any other provisions of the Lease, including, but not limited to any misrepresentations on Tenant’s application, Landlord, at his option, can elect to continue the Lease or terminate the Lease and take possession by any lawful means. Landlord is not required to give any notice to cure a violation of the Lease other than as required by law. In the event the landlord is forced to obtain a judgment against the tenant, said judgment shall bear interest at 18% until paid in full.

22. Ordinances & Statutes. Tenant shall comply with all municipal, state, and federal law, statutes and ordinances now in effect, or which shall be enacted in the future, and any violation thereof shall be a complete and material breach of the lease.

23. Interruption of Services. As long as the premises are habitable, any interruption of services or utilities, inconvenience, or discomfort arising from repairs or improvements to the premises shall not affect this lease, reduce the rent, or be construed as an eviction.

24. Intent. It is the intent of the Landlord to lease the premises to the Tenant and it is the intent of the Tenant to lease the premises from the Landlord.

25. Damage or Destruction of Premises. If a casualty partially destroys the premises but they can be restored to a tenantable condition, the Landlord shall repair the premises with reasonable dispatch; however, the Landlord’s obligation to repair the premises shall be limited to the amount of insurance proceeds actually received by the Landlord. The Tenant’s obligation to pay rent shall be suspended while the premises are un-tenantable. If a casualty damages the premises to the extent that they cannot be restored to habitable condition within a reasonable period of time, either party may terminate this lease by giving the other party written notice within 15 days after the casualty. The Landlord shall not be liable for any reasonable delay or for providing housing for the Tenant during repairs.

26. Legal Action. Tenant agrees, without protest, to reimburse Landlord for all actual and reasonable expenses incurred by way of Tenant’s violation of any term or provision of this Lease, including, but not limited to $20.00 for each Notice to Pay, Notice to Quit or other notice mailed or delivered by Landlord to Tenant due to Tenant’s non-payment of rent or other breach of Lease, all court costs and attorney’s fees and all costs of collection. Any such costs shall be due immediately as “additional rent.” Any payments received by Landlord will be applied first towards late fees and/or other additional charges, then toward rent. Both Landlord and Tenant waive trial by jury and agree to submit to the personal jurisdiction and venue of a court of subject matter jurisdiction located in the County in which the property is located. In such event, no action shall be entertained by said court or any court of competent jurisdiction if filed more than one year subsequent to the date of the cause(s) of action accrued.

27. Waiver of Claims. Tenant hereby waives any and all right to assert affirmative defenses or counterclaims in any eviction action instituted by Landlord with the exception of an affirmative defense based upon payment of all amounts claimed by Landlord not to have been paid by Tenant. Tenant may only advance other matters in a separate suit.

28. Property Loss or Damage. To the extent permitted by law, the Landlord and the Landlord’s agents shall not be liable for any damage to property or loss of property that is caused by theft or casualty on the premises. In the event that the building is damaged and through no fault of the Tenant, and cannot be restored within a reasonable time in the opinion of the Landlord, this Lease shall terminate with no further liability of either party. The Tenant shall obtain insurance to protect the Tenant’s personal property against such loss or damage (“renter’s insurance”).

29. Notices. All notices required by this agreement shall be sent to the other party in writing. The notices shall be delivered either personally or through first-class United States Postal Service mail at the recipient’s last known address. Unless otherwise required by law, the date of service shall be the date of hand delivery or the mailing date.

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30. Entire agreement. This agreement contains all the representations by each party to the other and expresses the entire understanding between the parties with respect to the contemplated transaction. All prior communications concerning the subject matter are merged in or replaced by this agreement. No modifications of this lease shall be binding unless they are in writing and signed by the Landlord and the Tenant.

Signed:

Landlord Date Tenant Date

__________________ Co-Tenant Date

Page 4 of 4 (Initial)

ADDENDUM TO RESIDENTIAL LEASE AGREEMENT

Regarding the agreement between ___________________________________________ (Landlord) and ___________________________________________ (Tenant), dated ___________________________, both parties agree to the following:

__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ _________

Signed:

Landlord Date Tenant Date

__________________ Co-Tenant Date

RESIDENTIAL OPTION TO PURCHASE AGREEMENT

OPTIONOR:

OPTIONEE:

In consideration of the Optionee meeting all obligations as stated herein, the Optionor hereby grants the Optionee an OPTION to purchase under the following terms:

Commencing on ___________________________, ___________, the Optionee shall have an OPTION to purchase the property (circle one) [owned / equitably owned / under contract / under option] by Optionor located at: _____________________________________________________________________.This OPTION will expire without notice and shall be of no further effect if not exercised on or before ___________________________, Optionee may renew this OPTION under same conditions for __________ terms for payment of $____________. This renewal payment shall not apply to the option consideration and shall be non-refundable to the Optionee.

The OPTION price is $__________________. The terms of the purchase shall be: The following items will be prorated at closing:

Optionee has paid the sum of $__________________ as non-refundable option consideration which will be applied toward the purchase price of the property if, and only if, Optionee exercises this OPTION to purchase. In the event Optionee fails to exercise the OPTION or defaults under any terms of the attached lease, this OPTION will be void and all monies will be retained by Optionor as liquidated damages and not as a penalty.

The recording of this OPTION or any memorandum thereof will result in the automatic revocation of this OPTION, and all monies will be retained by Optionor as liquidated damages and not as a penalty. In addition, Optionee will be liable to Optionor for all incidental and consequential damages for slander of title, including, but not limited to, attorney’s fees and court costs for correcting title.

This OPTION or any interest herein, is not transferable or assignable and can only be exercised by the individuals signing this OPTION acting in unison for Optionee’s principal residence.

In the event that Optionee is in possession of the property described above under a valid lease agreement at the time of exercise of this OPTION, $__________________ of each monthly rent payment received on or before the _______________ of the month under said lease will be applied as additional option consideration to reduce the purchase price if, and only if, tenant exercises this option to purchase. No payments received after the _______________ of the month will be applied. All covenants of said lease agreement must have been faithfully performed in order for this OPTION to be valid and enforceable, including, but not limited to,

Page 1 of 2 (Initial)

the repairs, maintenance and upkeep of said property. In the event that the Optionee substantially defaults on any payments or other obligations required under said lease, this purchase OPTION will be automatically void and any monies paid hereunder for rent or as option consideration will be retained by Optionor as liquidated damages and not as a penalty. “Substantial default” includes, but is not limited to, failure to make any lease payment by the _______________ of any month for which rent is due.

NOTICE must be delivered to the Optionor in writing of Optionee’s intention to exercise this OPTION at least sixty (60) days prior to exercise.This purchase option is not contingent upon Optionee’s ability to obtain financing from a lender or any other reason. Optionee understands that time is of the essence for this agreement, and that Optionee’s failure to purchase the property before the expiration of the OPTION, for any reason (or if Optionee defaults any terms of a lease agreement for the above stated property), all monies paid by Optioneee will be retained by Optionor. Optionor and Optionee further agree that this agreement is not an installment land contract, contract-for-deed or equitable mortgage, but merely Optionee’s right to purchase the above-referenced property under the terms stated above.

Signed:

OPTIONOR Date OPTIONEE Date

Co-OPTIONEE Date

Page 2 of 2 (Initial)

ADDENDUM TO RESIDENTIAL OPTION TO PURCHASE AGREEMENT

Regarding the agreement between ___________________________________________ (Landlord) and ___________________________________________ (Tenant), dated ___________________________, both parties agree to the following:

________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Signed:

Landlord Date Tenant Date

__________________ Co-Tenant Date

Real Estate Terms and Definitions

Balloon Payment:

Quite simply it is a large payment built into the terms of the loan, and almost always at the end.

An example of a Balloon Payment built into a real estate promissory note would be, where the terms of the note specify the borrower making equal monthly payments based on amortizing the loan over 30 years, but making the balance due after only ten years.

Based on this example the borrower gets to enjoy a smaller monthly payment for ten years, but then must pay the balance of the entire mortgage - a Balloon Payment - based on the terms at the end of the ten year period.

A Borrower that intends to sell or refinance the property prior to the ten year period will enjoy the smaller payments. This could allow the borrower to add value to the home during this time without the larger monthly payments, and then sell the home prior to the balloon payment.

If the borrower intends to refinance later this could be an advantage or disadvantage depending on what the market interest rate is at when they decide to refinance.

The Seller will receive the entire amount sooner than a more traditional 30 year mortgage. This could be an advantage or disadvantage depending on what the market interest rate is going to be at the end of the ten year period.

Of course Seller's and Buyer's are motivated by all kinds of things that prompt them to place a balloon payment in the real estate promissory note.

Title Insurance:

Title Insurance is protection against the loss arising from problem situations associated with the title of the property.

Generally older homes go through several owners prior to the most recent sales transaction that the real estate promissory note you have, or assisting someone else in the sale of.

Since they have most likely gone through so many transactions there certainly is a chance that something may be wrong with the title being clean. Someone along the way may have forged a signature during the process of transferring title. Or there may be a lawsuit against the property, or unpaid property taxes.

The Title Insurance protects the Seller/Lender up to the amount of the mortgage. It does not protect the equity, however.

Generally if the property has Title Insurance it means that they have searched to see if there are any problems out there that exist.

Jumbo Loan:

Simply put, a Jumbo Loan is a loan that exceeds the limit and guidelines that are set by Freddie Mac or Fannie Mae for a loan that they are willing to purchase from a Mortgage Originator.

Every January the conforming loan limits are set.

These conforming loan limits are set for a single family property, as well as, for two, three and four unit properties. They may have a different limit for certain states such as Alaska and Hawaii, so check that also.

Anything above the conforming loan limit is generally considered a Jumbo Loan.

In addition, the term Super Jumbo Loan may be associated with loans that exceed a certain amount as well.

These limits most likely will change each year, so do your home work.

Loan to Value or LTV:

It always boils down to risk, when an Investor is trying to decide if they want to purchase a property or not. And if so, what do they offer on it?

The LVT Ratio is the Value of the Home, minus any down payment or other discounts, leaving the actual loan amount.

So as an example, if you had a home valued at $200,000, and a down payment of $40,000, this will leave you with a loan amount of $160,000. The LVT Ratio would be the Loan Amount divided by the Home Value amount, giving you a percentage or LTV Ratio of 80%.

The million dollar question is what is the true value of the home?

Without a solid appraisal this may be hard to determine.

So an appraisal will always be the best number to work with when placing confidence in a properties LTV Ratio.

This information certainly is going to help you determine if the property is a good investment or not.

Acceleration:

What does the term Acceleration mean as it relates to a real estate promissory note?

This term would be included in the agreement between the Seller of a property and the Borrower.

Simply put it is where the Seller can demand payment in full should the Borrower default on the real estate promissory note agreement.

Certainly the terms of what default specifically means will also be defined in the contract agreement.

Mechanic's Lien:

A Mechanic's Lien is a legal filing that secures the contractors, or a subcontractors, claim against a property that they have built or made improvements on. This claim, or lien, would remain in effect until the the claiming party has been satisfied in full for the services they provided.

This is why it is important to have Title Insurance to protect you. A good title search would certainly discover this if it had not been disclosed prior to the sale.

In extremely rare instances the Seller may not even know that a Mechanic's Lien has been filed against their property.

Due on Sale Clause:

It is a clause in the note agreement that allows the Seller to demand the balance of the note in full if the borrower sells the home.

This seems obvious but it is something that should be included in every note.

There should also be the Non Assumption Clause which we spoke of earlier so that the Borrower must seek the Seller's approval prior to allowing the note to be assumed by another party.

Truth in Lending:

It is a federal law requiring disclosure of the Annual Percentage Rate to home buyers shortly after they apply for a the loan.

Always remember this is a legal process and everyone must follow the law for not only the federal government but also any state and local requirements as well.

Don't take this lightly.

Survey:

It is the measure of land, land prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions and the location and dimensions of any buildings.

Any fees associated with this is often included as part of the closing costs.

Conveyance:

Simply put it is a document which transfers an interest in real property from one person to another. Or as an example, the act of executing and delivering a deed or mortgage.

This is of course very important to the Borrower that when they completely execute all the terms of the real estate promissory note agreement that they will receive a good and marketable title to the property.

Origination Fees:

This is often referred to as the fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.

This fees above my also be referred to as closing costs.

Recording Fees:

The is a fee paid for recording a home sale with the local authorities, thereby making it part of the public records. The record is given an official records book and page number making it easy to find.

This fees above my also be referred to as part of the closing costs.

Final note

It is my hope that you are successful if you so choose to become a Real Estate Investor. And I hope this e-book can lead you in the right direction.

I do ask that you please consult your attorney and account to assure that these suggestions and forms in this e-book are the right choice for your success.

If I can be of further assistance, please do not hesitate to give me a call and I would be happy to see if I can lend some assistance at 231-947-5437.

Thank you and good luck in all your real estate investments,

Alex Misico