Step 1 to Pre-Foreclosure Success

Step 1: Organizing Your Office

Tim Mai has an easy nine step process for making great profits in the pre-foreclosure market. In this article, he will focus on Step 1 and explain the remaining steps in upcoming articles.

Setting up and organizing an office used to be an expensive affair. That's no longer true thanks to today's technology. For a minimum investment, you can now set up a highly efficient and effective work environment. Here's a list of the basic equipment you need to get started:

• A computer-These days, computers are a bargain. You can buy one cheaply. However, it pays to get the latest model since the computer world is forever changing and improving itself. I'd recommend that you buy one that has a minimum of 1 megabyte of memory and will allow expansion for more memory. This is important because new software applications get larger all the time and become "memory hogs," which can slow down the computer While this may not be so important at the beginning of your career, it'll become so as you become more successful and the complexity of your investments increases.

• A good "office" software suite-you'll need software that includes word processing, accounting software, computer slide generation, etc. Microsoft Office is the most common suite, but there are other, cheaper applications available (WordPerfect Office, etc.). Often, the application comes with the computer you buy so make sure the office suite comes with the features you need. Eventually, if you move into other, more complex areas of real estate (multi-unit dwellings, commercial real estate, etc.), you'll want to buy software that's designed specifically for the real estate market.

• A high speed Internet connection-whether it's a DSL (direct subscriber link) or cable connection, access to the Internet is absolutely vital these days. The Internet is a great source for research and information on all real estate topics. Definitely do not use a dial-up connection! Although such connections are cheap, they're maddeningly slow and tie up your phone line. Both you and your clients will end up frustrated at the inability to communicate quickly and effectively. In short, a high-speed Internet connection can win you business; a dial-up connection can lose it.

• A good laser or inkjet computer. Printers are dirt-cheap these days. The manufacturers make a greater profit from supplying the ink cartridges, so it pays to get a printer that's economical with the ink. It also pays to buy a printer that produces high-quality letters and images. This contributes to your image as a serious and professional investor. While image is not quite as important in the pre-foreclosure market
  , it will definitely be a vital factor once you move into other areas of real estate. Banks, mortgage brokers, title companies, etc.-they all expect to see a polished and professional image in the people they deal with.

• A reliable cell phone-as you probably already know, this is one of the most important tools you can have as an investor. A cell phone allows you to be in contact with buyers and other individuals quickly and easily. Basically, it's an information-gathering device that helps you identify deals and set them into motion. So, it's important that your service be of high quality and not subject to a lot of dropped calls. Check out the service records of the cell phone providers in your area and go with the one that has the best record of reliability at a fair price.

Those are the basics then, but we need to cover one more subject that's vitally important to your success-accounting and record-keeping.

Accounting and Record-Keeping

Real estate is governed by many local, state, and federal regulations. That means it's vital for you to keep good records. As you start out, you may not need anything more than pad of paper and a pencil. However, once success arrives, you'll definitely need computerized records and an accounting application. They not only help you keep your records straight, but make the whole process faster and easier. They're well worth the investment! Below is a list of items you should definitely make use of in maintaining your records:

• Accounting software-If you decide to move beyond pre-foreclosures, you'll definitely need to add a spreadsheet program (Excel, Quicken, QuickBooks, etc.) for all basic accounting requirements.

And if you decide to eventually move into property management, then you'll need to add software designed specifically for such properties as apartment buildings, commercial properties etc. This software should include the following:

• A complete accounting package (general ledger, accounts receivable/accounts payable along with check writing, budgeting and financial reporting capabilities). Ability to track work orders and reminders, prints late notices, leases, checks, 1099s, etc.

• Tenant and lease management capabilities (including rental management forms). Pop-up reminders to remind you of late rent, expiring leases, etc. categorized by building, unit, owner or tenant.

• Capabilities to organize tenants, contractors, etc.

• Templates for letters and forms, etc.

You can use the Google search engine on the Internet to study and evaluate property management software. To help you out, I've listed several software package names and their URLs in alphabetical order. I don't recommend a particular package. I simply recommend that you try them out and see which one works best for you and is relatively easy to understand.

• ü MRI Residential (http://www.realestate.intuit.com/)
• ü RentRight (http://www.rent-right.com/)
• ü Spectra (http://www.spectraesolutions.com/)
• ü Tenant File (http://www.tenantfile.com/)
• ü TenantPro (http://www.propertyautomation.com/)

You should be able to customize any of these programs to fit your specific needs.

• A separate checking account-Definitely keep your real estate financial transactions separate from your personal checking account! This is extremely important because you don't want to invite a visit from the Internal Revenue Service (IRS). If you don't keep a separate account, the IRS will be very suspicious of any claims for expenses, losses, and depreciation you put on your federal tax return. It may not consider you a legitimate business, and, if you're audited, you may have a devil of a time proving expenses if your records are mixed in with your personal checking account. Also, it's wise to have a credit card in the name of your business and charge all business expenses to this account. This also keeps business records separate from personal accounts.

• Expense records-Document every expense you have and keep organized records. Expenses can include bank statements, cancelled checks, tax returns, invoices, etc. In short, always have proof available in case the IRS challenges items on your tax return.

• Mileage records-It's essential to keep business-related travel expenses well-documented. This is because the IRS has a requirement that tax payers maintain records of business-related mileage in order to claim that mileage as a business expense on tax returns. As of 2007, the standard mileage rate that can be deduced from federal taxes for the cost of operating a vehicle is 48.5 cents per mile for all business miles driven.

• Depreciation-Depreciation accounts for the fact that most assets lose their value over time and must eventually be replaced. You definitely want to take advantage of IRS rules to make sure you earn the highest profit possible. So, on your tax returns, claim the maximum depreciation allowed on such items as office equipment, software programs, cell phones, etc.

• Storage-Store all documents in an organized fashion so they're easy to find and access. You don't want to waste valuable time trying to locate items when you could be out finding more business. Use an organization method that works best for you (three-ring binders, tabbed folders, etc.). Photocopies of documents are fine for your office, but you may want to store originals in a safe deposit box at your local bank. However remote, there's always the possibility of fire or water damage destroying originals, and, if that happens, you could spend a lot of time and trouble proving ownership of property and other items.

• Hire a professional for tax returns-Choose a board-certified tax attorney or CPA to prepare your taxes. This is a must. You may be tempted to use an off-the-shelf product (TurboTax, etc.), but I advise against it for the simple reason that these products can't represent you before the IRS! Also, an experienced professional will have knowledge that a tax program couldn't possibly possess. He or she will be well aware of all the intricacies of federal tax law and will be able to use them for your maximum benefit.

• Hire independent contractors-At the beginning of your career, you don't need the hassle of maintaining employee records (wages, social security, etc.) and dealing with a myriad of state and federal government agencies (OSHA, the Department of Labor, etc.). As your business grows, you may find it necessary to hire part-time and/or full-time employees. However, in the beginning, it's much less trouble to hire independent contractors.