Are these people for real?

Financing, Hard Money Lenders, Private Money
1

I’ve been reading posts here from people that are interested in purchasing 2.5 and 2.7 mil worth of properties, with awful credit, no cash, no experience and what seems to be minimal assets. Ignoring if it’s wise or not, is this even possible, without crazy financing, double digit interest rates, or going to the mob?(No offense meant to anyone, I’m just very curious, and this idea sparks optimism.)

I’m also trying to get started with multifamily properties, and I have over $120k in cash, a house worth $300k, 168k left on the loan and good credit. I’m having to sell the house in Sept. due to divorce, and probably won’t see any of that equity, but still…I’ll at least still have the rest, and most likely more after settlement.

I’ve been looking at duplexes, tris and quads to get my feet wet, and was thinking there’s NO WAY I should be looking at anything more than $300-$350k, and realistically, more like $275k, tops, and having to be an owner/occupant.

Should I be setting my sights higher? If the numbers meet my criteria and the deal looks good, should I (and my lender) be more concerned just with the DSCR, cap rate, etc…being in line than the actual price, as long as it’s attractive?
After reading stuff like that, could I be more aggressive and flexible with my price range? As long as I can show servicing the debt is no problem, and I put 20% down, could I theoretically shoot for the moon? Or at least avoid being a slum lord for a few years? What’s a good rule of thumb in this situation when starting out? I could avoid many problems with a higher quality property or at least ones that generated higher returns.

Any thoughts or wisdom?
Thanks- :slight_smile:
Michael

2

I recommend starting out small…Look for a nice duplex or SFH that will cashflow. Reason for this is, you never been a landlord and it may not be for you. Some people hate it. I never liked it, so any hold property that I rent will always be runned by property mgmt company. I do not want the dumb phone calls. Not that I dont buy rentals, a good deal is a deal to me, but i tend to lean more for rehabs and lease option deals. However longterm rentals bring in a streamline of steady cashflow for the future…

Depending on your market, 20% may cashflow your deals. IN my market, its more like 40% downpayment now, so rentals are tough. I have to structure my deals with cashback to cover neg cashflow but i do tend to go out of state for rentals now.

Oh, you can buy with zero down, or 5%, you decide…make numbers work, and talk to your brokers first. I recommend calling some brokers before you have any deals. Interview them. They will be your employee and only get paid when they do the right job for you, as in closing the loan. Get one that is an investor himself and ask him how many properties he has and types he buys. Also find out how many investors they deal with as well regularly and ask for referrals. Mention you like to network with some investors for deals…No one closes ever deal they come across…

3

Michael,

I have been on this board for quite a while now, am a Moderator and read (or at leaset look at) EVERY post EVERY day…

You’re right, there ate folks here with wild schemes and dreams to leverage their $0, 450 credit score, zero REI knowledge, zero knowledge, zero responsibility, and zero patience into a multi-million dollar portfolio and do it by Friday (of this week)…

They are among that 98-99% that never do ANYTHING with REI…I am fully with “yrush”…start small, learn the ropes, learn the field that interests you…if you start small, you can make some mistakes to learn from and not “break the bank”…
My two cents.

Keith

4

Thanks for straightening that out…that reaffirms what I’ve read and been told and witnessed. That’s more along the lines of what I was envisioning in being successful with endeavors like this. There must be a learning curve for this industry, as anything that has so many variables and complexities and to come charging out of the gates like a maniac trying to work a gigantic deal first go-round seems like it’s just asking for a world of hurt that could haunt you to the grave.

But as I venture out on my own, I am committed to smaller deals first, SFH’s, duplexes, tri and quads and am comfortable with the idea of starting out on the bottom rung, meaning lower end properties. But what I’m sensing is that I might be OK looking at properties in a higher price bracket than I am. As long as the ratios and cashflows etc…jive, there’s not much more inherent risk than working with a shotgun shack than a $1500/mo unit, and in fact, possibly more.

The reason this is an issue to me is that it seems (and I may be wrong here) that finding qualified tenants, collecting rents, maintenance, crime, upkeep, evictions, and so on would be less of a headache with a higher end property. In other words(and this is a very basic example), instead of investing, say 50k in 5 low end properties that generate 250/mo. with 10k down for each, it might be advisable to find one larger SFH, duplex or tri that generates 1250/mo with the 50k down on it. Seems like common sense. Plus the appreciation, if any these days, on a $250k property seems like it would be a little more favorable for the area it would be in, vs. where 5 $50k houses would be.

But my confusion is that it seems like I might be able to qualify for a much higher loan than I thought. Not that I want to max it out, but If I’m going to an owner /occ., maybe I should look at a much higher end property for the reasons stated above, plus I wouldn’t be living in an undesirable locale, to me. I wouldn’t be happy living in a $50k house (around here) no matter what the ROI was. I’m thinking out loud…

I feel like I’m still not being very clear in my thoughts…Yes, I’m starting small, as far as the # of units. And I was imagining the first property(ies) being low-rent, also. But is there a ‘rule’ or ratio for where an investor should start price-wise? As long as the numbers work, the price is starting to seem secondary, to an extent. If it’s a $100k property or a $1MM property, and all the ratios are the same on both, but the net CF’s are logically going to be greater from the $1MM property, wouldn’t that make more sense?

Does anyone see what I’m trying to figure out? :stuck_out_tongue:
I think the answer is obvious and I just want someone to say it.
Michael

5

Michael,

I’d like to offer some advice. Go for the upper end properties ($300K-$500K). Use the great benefits of a 5-yr ARM Option loan to your advantage. $450K loan payment is only $1191, plus taxes and insurance. If you find a property with enough equity, you can have an enormous monthly cash flow to get you started.

Then, pick up 1-4 units. Manage these properties within a land trust and you can eliminate maintenance, collections, etc. and have complete privacy and asset protection. I wish you the very best of luck.

Da Wiz
a non-lawyer

6

Actually in terms of Cashflow, a $1mil SFH will not reallt bring in a higher cashflow as a $400K SFH in most markets. For instance my market, SoFl, to cashflow a SFH, you generally need about 40% downpayment and that will only generate maybe $100 a month and get a deadbeat or 1 month w/o rent and your negative for the year…

Just price matter to start out. Not really… Most investors look for a return of $100-200 per unit that listen to the guru’s really. THen the investors with lots of experience starts to look for about $200-400 a month PCF… Many want to be able to cover monthly cost with 1 units rent on a duplex…

Now even middle class people have problems paying bills like the lower class… They can actually be worse at times, since they have more common sense and not all threats work right, such as legal. Remember alot of white collar workers seem rich and live a great life with the BMW in the driveway and the half mil. home, but reality is , they are maxes out on credit and living paycheck to paycheck. Thats when skilled investors come along and get a great home for a cheap price from a desperate seller.

7

the ability to adapt are survival tools for longterm success. Experience will come as it cannot be obtained today. Some people don’t have to fall on their face to gain experience, they just learn from others falling on their face! Here’s a fact, everyone starts small. Because, when you pick up your very first REI book, you’re taking baby steps. You read some more, you call a few people and ask questions, you buy programs, you research investments, you mock investments, and then you finally wise up and get a membership to www.reiclub.com. Now, at this point if you are confident that you can do it, you can! Just remember, 99% of people will tell you that what you are aiming for can’t be done! They are right, if you are them! I say shoot for Jupiter, and if you land on Mars instead, well hey, you got further than we did, RIGHT!

8

If you want to stay in the home and not sell it I can show you how, if you have pretty good credit, and get out $80k in cash and the payment would be only $720 a month,

And THEN, put your money in an Indexed Annuity where it will be protected, and create an income stream ($1,100 a month, not touching the principle)

And THEN, when you need funds for real estate transactions you can go to the Bank and borrow against it (Leveraging) at Prime - 1% and only pay interest while using their money,
And not use any of your funds (O.P.M. other people’s money, get it),

Just a thought…

Anthony Lanzone
Senior Mortgage Advisor

9

Are you for real?

Why not just invest the money in the S&P or some funds indexed to defense, those have been hot lately and have higher returns.

What are the fees for setting up an indexed annunity? What will the effect of taxes be on your return? What are the fees when borrowing the money from the bank?

As for what to start out on, figure out what you can rent it for and what it will cost you and run the numbers on each case or just figure out the cap rate for the property. You should also be familiar enough with the area so that you can tell if the rent quoted on MLS is a realistic number or not, some are really exagerated or are estimated and if you don’t get those rates, you’re not really getting the cap number you bargained for.

As a rule of thumb a 3 or 4 unit building is going to have a much better chance of cash flowing than a single or duplex. Technically less risky too as one vacancy leads to a 25-33% vacancy rate on a 3 or 4 family while it’s 50-100% on an single or duplex. I hardly ever see any single or duplexes cashflow in this area, three and four is possible but also rare.

10
11

Dreamers and visonary has to be trained. Thank God, that they need me.

12

Reality is good, but we need to be creative to find solution and not focus on the problem. JKF said, ask not what you country can do for you but, what you can do for your country. We need to collaborate, put our minds together, a think tank, like the gorvenment to find solutions. This is my opinion.