Understanding Your Credit: by "Jungle" Jim Galvanek

What is in a Credit or FICA Score?

Credit card companies can be evil, so YOU need to learn to play their game. Even let them win a little bit, but let them win at 3.99% or 7.99% and not 24.99%. Once you understand how they play the game you can take advantage of their system. You will need to learn to read your statements and follow the interest rates. I use an excel spread sheet. You will need to stay proactive by calling them every 6 months or more to ask to lower your interest rates or increase your limit. Below is a brief outline of what is in a FICA or credit score and “How to Play the Game”.

There are 3 Credit Repositories:
1. Equifax (www.Equifax.com)
2. Trans Union (www.transunion.com)
3. Experian (www.experian.com)

Notes: You may want to consider becoming a member of at least one if not all three. If money is an issue you can sign up though Discover card and they will monitor for 7.99 a month.

What makes up your credit score?
Credit Score Percentages
35% Payment history
30% Debt to available credit
15% Credit history
10% New credit
10% Types of credit used

35% Payment History:
1. Things coming off after 7 years is a myth
2. Always ask for a letter of deletion
3. Always ask to get a supervisor on the phone
4. They list your account number as *******5555. You can dispute that *****555 is not your account number.

30% Debt to available credit
1. Actually—Debt to available balance
00-30 Green light
31-70 Yellow light
70-100 Red light

2. Open only investor friendly cards
3. Call you credit card companies to raise your limits every 6 months. Ideally right after you paid your current bill off in full.
4. Two Great credit card sites: (Look for promotional rates and low interest cards)
www.creditorweb.com
www.creditcards.com
5. Always ask for credit card checks. These are often better than going to a bank for a loan.
6. Build both personal credit and business credit. If your personal credit is bad you need to fix that but you can also build you business credit though credit cards

15% Length of Credit History:
1. Start a good credit history as soon as you can
2. Open a bank account and secure credit card for bad credit cases and those opening first time credit cards
3. It’s never to early or late to start the credit process
4. Start your kids early (get credit cards in their name to build their FICA score)
5. Banks to avoid are Cap One and US Bank

10% New Credit (2 types):
1. Hard hits (You want to limit these to a few a year)
a. Loan inquires
b. Utility start ups (Cable, Electric gas etc.)
c. Car loan
2. Soft hits (These do not affect you score very much)
a. You puling your credit score from one of the big three agencies
b. Appling for a credit card
c. If you get the card offers in the mail then they have pulled a soft hit on your credit.

10% Types of Cards Used:
1. Store Cards (Avoid the cards unless you have had for more than 10 years or Home Depot, Lowes or Sears and you use for rehabbing or business) These will hurt your credit score.
2. Visa, Master Card, Discover, Amex are all good options


Three ways to dispute items on your credit report:
1. Call (Trans Union is the only one that will answer the phone)
2. Internet (email)
3. By sending a letter (Certified)

How do you repair your credit??
1. Dispute derogatory or incorrect information on your credit report
2. Dispute by phone, email and certified letter
3. Letter to creditor for deletion of information on your credit report
4. Letter requesting account statement
5. Letter to Federal Trade Commission in regards to the removal of the item

Good cards for investing or doing rehabs:
1. Amex Blue
2. Discover Platinum
3. MBNA
4. American Express Platinum Business
5. Skymiles card

Action Items:
1. Call all your credit card companies and ask them to lower your rate or ask for a promotional rate.
2. If you are going to use an advanced strategy to use credit cards as short time loans you will need to apply for a new card about every 3 months. This is often better than going to a bank or hard money.
3. Get rid of all you department store cards unless you have had them for more than 10 years and have a good credit history.
4. Pull your free credit report at one of the 3 agencies and dispute any derogatory items on your credit report. You will need to contact all three about the item on your report.
5. Set up business credit cards to build credit for your business. This will be especially good if you have poor credit that will take you a few months to clear up.

You must take action. In this day and age, life is not about “hunting and gathering” –It is about FICA. How things have changed and they will only get more interesting as we continue to move forward. The rules seem to change daily with the new administration, so stay abreast to the changes and be proactive!

Jim Galvanek
HLA Properties
www.hlaproperties.com

Can You Keep a Secret (Seriously!)...?

Simple question: Would You Buy a House at Costco…?

Simple answer: You would if you knew how!

What on earth am I talking about? Why, wholesaling real estate of course! Now shhhh…don’t let anyone hear you reading this because I’m about to unleash the secret way that you can build long-term wealth by investing in real estate WITHOUT HAVING TO PAY RETAIL PRICES!!

The Wholesale Purchase:

Do you shop at Costco or Sam’s Club? What about Carmax? Or Marshall’s…or T.J. Maxx?

If you don’t like to pay retail for the “little things” like food, cars, your clothes, etc., then why on earth would you pay retail for the biggest purchase most people ever make?! It makes no sense at all to the value investor. Every once in a while you may find a “deal” on the MLS (Multiple Listing Service), but smart investors who are investing for long term-term wealth know there is a better way. In fact, they often use their self-directed ROTH IRAs or 401(k)s so the profits from their investment all grow TAX FREE! Yes, you can totally do this too, and I’ll teach you how in a later chapter.

DISCLAIMER: The kind of real estate investing we’re going to talk about here does not apply to the purchase of your primary residence. If you have fallen hopelessly in love with the house of your dreams, there is no hope for you – you will undoubtedly pay too much for the property. Yes, I have done it myself…and yes, pleasing my significant other was involved, so that’s my alibi! However, if you can remove your emotions from the equation and just focus on the numbers of the deal, then buying properties Wholesale is the way to go.

Sounds good so far, right? Now you’re probably asking how this works, and the best way I know how to explain it to you is to just explain our business model and give you some examples. Please send your questions via the comments and we’ll answer them promptly.

STEP 1 - MARKETING

This will come as no surprise to the seasoned investor, but the whole process starts with marketing to homeowners. As wholesalers, we market to a very specific set of demographics within our targeted geography. This includes buyers in distress who need to sell their homes and need to sell fast. Sometimes the homes are in distress too. Either way, when we buy someone’s house, we provide a valuable service to them by paying a fair price for taking the home “as is” and letting them move out on the date of their choice.

Now, the purpose of this article is not to teach you how we negotiate our deals will sellers (that’s a whole separate chapter!), but suffice it to say that we acquire our properties at significant discounts below market value. Some of these properties we will keep as long term investments. Others, need a lot of work and occasionally we will rehab/renovate them ourselves so we can re-sell (flip) them for a higher price. However, on a lot of the properties we acquire…we just want to make some fast cash. This is where you come into the picture. We call this “flipping paper” or wholesaling the deal. Basically it works like this:

 Motivated Sellers contact us to buy their house (via Direct Response Marketing)

 We make an offer / the seller accepts / we put the house under contract and set a closing date (typically 30 days from the date we sign the contract)

 We send you an email detailing the fair market value of the subject property based on recent sale comps, our asking price for the property (this will be a fair amount higher than what we have contracted to pay for the property), the equity spread, estimated closing costs, estimated repairs, pictures, and usually video clips too…basically everything you need to decide if the property is something you want to pursue.

 We usually get enough response in the first 72 hours of “posting” each deal that if you snooze…you really do lose.

 We “assign” the deal to the first Buyer/Investor who contacts us and pays a non-refundable deposit (typically $2,000…this shows us you’re serious). The balance of the assignment fee (usually somewhere between $5,000 and $15,000…but could be upwards of $50K depending on the nature of the deal) can be paid at Closing. There are specifics on exactly how the money needs to change hands that we address once you have expressed interest in one of our deals.

 At closing, you will need to show up with the following funds. We don’t care if you pay all cash, get a traditional mortgage, or use borrowed funds from a hard-money lender. Sometimes we can even offer some financing on the property ourselves, but you will still need to produce at least some of these funds at closing.
o Cash due to seller
o Closing costs
o Remainder of assignment fee

It’s really that simple.

The Seller gets a fair price for their house, doesn’t have to do any repairs, and can move out on the date of their own choosing.

The Wholesaler (“US”) makes a fair profit for their trouble of finding a seller, finding a buyer, putting the two together and executing the transaction. Good wholesalers invest heavily in their marketing to optimize these processes. They don’t get rich off any single deal…but by executing a large volume of deals that are modestly profitable they can make quite a respectable living.
The Investor (“YOU”) acquires an asset that has inherent value (equity) built-in to property, and/or cash flow potential if your goal is to “hold” the property and landlord it yourself.

Probably the most important thing you can do to help you make the most of your real estate investing is to clearly define what kind of an investor you are, and this is really going to come from identifying your investment goals. Here’s a few questions to help you get focused on your goals.

1. How will you fund/finance your investments?

a) I Have Loads of Cash
b) I Can Borrow Loads of Cash from Family/Friends
c) I Can Borrow From Banks (Have Terrific Credit & Down Payment Saved Up)
d) I Will Borrow From Hard-Money Lenders (High Interest Rates; Loan To Value Criteria)

2. What will you do with your properties?

a) Occupy – Move into them!
b) Rehab/Flip – Fix them up and then resell them.
c) Landlord – Rent them out for cash flow.

3. What’s most important to you?

a) Cash Now
b) Cash Later
c) Minimizing Cash Needed
d) Target Profit ($ amount or % ROI…?)

4. What is your investment horizon?

a) 30-60 days
b) 6 months
c) 1 year
d) 3-5 years

5. How much work do you want to put into each property?

6. How many properties to you want to acquire this year?

Does that help? Once you know exactly what you’re looking for, your chances of finding it skyrocket! If you don’t know what you want…I GUARANTEE you won’t achieve it! So get focused on what you want, and REFUSE to ever pay RETAIL for real estate again. You can do it!

Coming in the next installment…

No-Money Down Deals using Seller Financing, Lease Options, and Rent-To-Own Programs!