Check in the Mail

Random Ramblings
21

fdjake, I respect your defense of rookieNYC, but it’s unnecessary. I am not concerned about his expertise, only what he says about what he knows.

Meantime, I’ve never mentioned, or compared, cash flow results in this discussion, except to say that collecting rents on time maintains/increases reliable cash flow. And for the record here, after Rookie’s super-duper-delicious-over-the-top cash flowing notes get paid off, he ends up not owning real estate.

I’d rather have an asset that perpetually spits out cash, over something that naturally stops doing that.

With my free and clear houses spitting out 2,000/mo each, before taxes, insurance, maintenance, and management, etc., I net only 1,000/mo each. But that income never ends. And even when my commercial income dips to a 40% net of GSI, at least there’s no end to that either. However, waiting for those properties to ripen was the key here.

Meantime, Rookie’s deal requires a boatload of cash. Who’s got that to start with (and I have no idea how much we’re talking about, except “mid 7 figure | millions”)? Well, get real, about bragging on some scheme that requires that kind of resource and calling it “…better than the waste-of-time that residential real estate is.”

I suppose Trump is done making money on HUD projects, too, and focuses his time, energy and money on ultra high-finance deals, but that also required the accumulation, and experience of handling large amounts of money, if not having huge amounts up front, just to even think about traveling in that orbit. Even so, none of that means there’s no more money to be made in HUD projects.

Apart from all that… there’s a difference between passive investing and active investing. In fact there’s so many different ways to invest in real estate related situations that all I can say here is ‘to each his own.’

Meanwhile, again, if you’ve got mid-seven figure | millions to loan and don’t need to rub shoulders with the little people to make money… fantastic. If you don’t have that, then there’s just a few alternatives left.

I know that small time, residential real estate is profitable, and it is the starting place for those without mid-figure | millions already to work with. At the same time it is a long term investment strategy, too, that by it’s very nature and definition requires time before it’s ready to harvest.

22

Believe me…Rookie does not need my defense. You’ll learn that first hand. :beer

23

great post Jay…

-Mike

24

after Rookie’s super-duper-delicious-over-the-top cash flowing notes get paid off, he ends up not owning real estate.

I strongly disagree with this…My returns will compound 2-3x faster than owning residential income properties…And if my goal was to own RE ,I would own tons of it…

I’d rather have an asset that perpetually spits out cash, over something that naturally stops doing that

Remind me why my business and cashflow suddenly stops?.And to be honest I have yet to see a business that creates as much cash as hard money lending with size money…There is ZERO overhead if you are doing like me…If you took some time to understand the hard money/private mortgage business you would realize that the longer I stay in the business the more I make…Unlike a set amount of properties,as the income diminishes over the years because overhead increases far faster than the rents…

With my free and clear houses spitting out 2,000/mo each, before taxes, insurance, maintenance, and management, etc., I net only 1,000/mo each. But that income never ends. And even when my commercial income dips to a 40% net of GSI, at least there’s no end to that either. However, waiting for those properties to ripen was the key here.

These houses cost money…Your overhead is much more than you state and I highly doubt your ROI is higher or less involved than mine…I have certain loans that yielded %50 in 2 years between points,interest,fees…I love doing 6 month loans…

Meantime, Rookie’s deal requires a boatload of cash. Who’s got that to start with (and I have no idea how much we’re talking about, except “mid 7 figure | millions”)? Well, get real, about bragging on some scheme that requires that kind of resource and calling it “…better than the waste-of-time that residential real estate is.”

If anyone looks back in this thread it was you who brought money first into it with Uncle Bill and his 200 houses worth $15,000,000…I do agree that you need boatloads of cash to do what I do…

Apart from all that… there’s a difference between passive investing and active investing. In fact there’s so many different ways to invest in real estate related situations that all I can say here is 'to each his own

I agree once again…If you knew me better you would know that I have my hands in every area of RE…I just happen to like private mortgage investing the best…And yes I hate residential tenants/residential income properties…HATE THEM…

Meanwhile, again, if you’ve got mid-seven figure | millions to loan and don’t need to rub shoulders with the little people to make money… fantastic. If you don’t have that, then there’s just a few alternatives left.

Im self made…And Im very humble unless I get someone calling BS on my business methods…And as to why I take the time to post here is simple…I was mentored by very successful people and they took the time to guide me…Im just reciprocating…I enjoy helping and explaining things to newbies…Ask allagash…He emailed me 2000 times to learn the equity markets,all the while I told him to NOT TRADE…

I know that small time, residential real estate is profitable, and it is the starting place for those without mid-figure | millions already to work with. At the same time it is a long term investment strategy, too, that by it’s very nature and definition requires time before it’s ready to harvest.

While I agree with the first half of this statement ,I dont agree with second half…Private mortgage investing is a far better strategy than owning and managing RE…The returns far outpace it and the flexibility of the investment is incredible…

Keep in mind that Im not here selling anything…Im here on my own good will…Simply trying to help others…And to be honest the few times I get harrassed/questioned annoys me…And it hurts the people that are here to learn,because the more I get annoyed the less I will post in the future…

In the end like you say,to each their own…No hard feelings…

25

Anything I add would become repetition.
:banghead

26

I’ll post this for anyone interested in eventually adding private lending to their portfolio’s.

Here’s a real world example of how I do this…

AS many of you know, I buy ALL my properties directly from the seller…NO REALTORS…EVER!! I do this because it gives me a huge advantage. NO ONE but ME and that seller know the property is for sale. That translates into huge discounts for me.

Here’s a recent example of a home I purchased ALL CASH and sold with a private mortgage to an end user with good income and a sizeable down payment.

The house was a 3 bedroom cottage that was is great shape except for the “smokers stink” throughout the home. These people were incredibly CLEAN and NEAT, they just chained smoked for years so the house reeked of smoke…I paid under $35K for the house.

I had everything painted and new carpet installed…Smell was GONE…Total spent was under $5000.

I offered the home with a private mortgage for $149,000 with a required $10,000 down payment and a 12% mortgage for 20 years.

At the closing I received a check for $10,000, now my total outlay is just $30K

Now it gets INTERESTING!!!

The buyers are paying just over $1500/month…Over the life of the loan they will pay ME…

$367,000

Yea…You read that right…$367,000 on a $30,000 investment.

PLus…

No one calls me when

The roof leaks
The toilet is plugged
The taxes are due
The water bill comes
Heating costs rise
The grass needs cutting

In FACT…I’ve never even MET the buyers…That’s the KEY to this…Set up an LLC, use a “power of attorney” given to your lawyer to conduct the closing (so I don’t even attend THAT) and the mortgage payments get sent to the LLC’s PO box. Basically, these people don’t even know who I am!!! JUST LIKE A BIG BANK. You create an anonymous entity that just provides FUNDING!!!

THIS is what Rookie is talking about!!!

If I want MORE INCOME, I finance more houses and spread those loans out over the years. As earlier loans get paid off, newer loans continue to throw off MASSIVE RETURNS.

All done without a SINGLE PHONE CALL for repairs…Not a single PROPERTY TAX PAYMENT…No water bills…No broken BOILERS in the dead of winter when it’s 4 degrees outside.

Every single bullsh*t problem…IS THEIRS. The HOMEOWNER!!!

On top of everything…If they default???

I get the HOUSE BACK along with ALL THEIR PAYMENTS!!!

This works for Rookie and I because it’s a two fold ATTACK…First, we are buying properties at HUGE discounts…This COMPOUNDS the returns…and second…INTEREST payments over a long term provide BIG PROFITS that roll in for DECADES…

I’ll have EVERY PENNY of MY MONEY out of this property in LESS than 2 YEARS!!!
At that point I just find another qualifying property and do it AGAIN with the same CAPITAL!!

I’ve done it BOTH ways…Did the LANDLORD thing…YOU CAN HAVE IT!!!

I’d rather be THE BANK any day!!!

Open your EYES…Your working 10 times harder for HALF the return!!

27

Im going to list just a few examples of how profitable it is being the bank vs owning,managing RE…

1…I have a borrower who has a 145k house…He borrowed $75,000 against it…I escrowed 6 months worth of points and interest which equate to %12.5 combined…And no I break no usury laws…The kicker is he refinanced 4x …Yes you read that correct…%50 in 2 full years…He has paid almost $40,000 in interest on the same $75,000 he still owes me…

2…Another borrower purchased a beautiful house in Lake Mary Florida…He paid $300,000 (the house sold in 2007 for $630k)…He put his own money into the deal…He put down $150,000 plus my escrows…I matched his $150,000 minus my points and interest which equate to %18 for the year…$27,000…And here is the best part…He refinanced…This guy calls me up and says I cant find a mortgage and I dont want to lose my home…Will you refinance me…Ofcourse I will !!!..He sends another $27,000 + legal costs to my attorney…In my mind he can keep my $150,000 for the rest of his life as long as he sends me my $27,000 every May…%36 in 2 years…

3…Cashout refiance…High end home in Queens NY…Probably worth 700k-750k in this market…Buyer needs $350,000…I dont like the borrower because he is sketchy…So I make a deal for him to deed me the house and I will lease it back to a corp,NOT HIM…Best part is I back out 8 months worth of lease which equates to $62,500…So Im out of pocket for $287,500 on a 700k home…But as soon as I ink the mortgage the $287,500 becomes $350,000…Now as well know he cant find a mortgage so rather than take his home even though its deeded to me I do the next best thing…I offer him a $350,000 mortgage at %11.99 with a 5 year call…That means he has 5 years to keep the mortgage and the 5th year he has to either pay me off or I have to approve an extension…He pays me $3206 a month and I escrow for taxes and property insurance…So lets do the math…I laid out $287,500 and 7 months later its $350,000…Thats a %17.8 return in 7 months…Then I collect $16,000 more in the next 5 months…So my one year total return is $78,035 ,on $287,500 laid out…That equates to %27.3 *for the first year…Now he pays me $192,360 in interest only for the next 5 years…And here is the best part …After the 5 years is up he still owes me $350,000…I collected $208,360 in the 5 years in interest…Thats %60 in the 5 years on $350,000,if I include the $62,500 I also made $270,500 total on a $287,500 investment in 5 years the total gains is %94 on the entire deal…And this is a prime piece of property that is NOT Owner occuppied…

I have countless other examples but I wont list them…Point is there is no comparison…Take note that I only used single family home examples here…Had I owned these homes and had to find renters and paid the taxes,water,lawn,homeowners ins,maintenance,heat,electric,etc you think my returns would be anywhere near what I posted above…I think NOT…And I will gladly forward all closing docs,HUDs,contracts to the moderator of my choosing if you dont believe me…I have done it in the past and I will gladly do it again…Christopher W will vouch for it…

And you think being a landlord beats this… :bs

28

great post Rookie…landlording as an end game…I don’t think so…

Fdjake…

what was the buyer’s profile to make them go for that 12% rate and downpayment.

I know Fadi, (another moderator here), did some owner financing a couple years ago…and it turned into a nightmare for him.

I don’t recall the details but it’s in the posts here.

-Mike

29

The buyers profile was as follows.

Husband and wife with 2 kids…They lost their home when the husband was out of work for 2 years. Their credit is toast…BUT, the husband just landed a very good, long term job at a prison. Excellent job security and decent pay.

They did the deal because of the SCHOOL SYSTEM this property was in. Their kids could stay in their current schools. Their payments are just slightly more than current rents and they felt comfortable knowing their children are now in a stabile housing situation.

The house is THEIRS…The payment would be LESS if their credit was better but it isn’t.

I will also add that their current payment is $1000 LESS per month than their previous mortgage. They made the mistake of buying into the BULLS-/T in 2006. They bought too much house with an interest only variable mortgage that reset and screwed them.
They now have a house they can afford, in a area they love with a lower FIXED rate mortgage.

Our job as INVESTORS is to MATCH the INVESTMENT to the SITUATION!! learn to Do that…and the money will POUR IN!!!

30

I love the thoughts in this thread.

You guys are basically doing a rent to own strategy on your properties, correct? When you do that, there is no repairs and such, like you guys are speaking of. Or is there more to this that Im not seeing?

31

It isn’t rent to own…The house is THEIRS…They came up with the deposit, they agreed to the PURCHASE PRICE and the interest rate on the LOAN.

All I provide is that LOAN.

All that happened here is “I” provided what a bank wouldn’t…CREDIT on an asset worth MORE than the loan amount.

The BIG difference for ME is…

I actively LOOK for properties that I can BUY for pennies on the dollar, rehab for short money, then SELL for a big profit. The money REALLY GETS BIG when you can hold a mortgage on the full purchase price…Remember…I paid $40k for this property, the BUYERS borrowed almost $140,000 in order to BUY that $40,000 home.

The INTEREST is based on that $140,000…I WIN on both fronts…the outright profit on the sale AND the INTEREST payments made on the loan. So instead of a $100,000 rehab profit I have a $330,000 profit over a longer term.

AND…Because THEY own the home, there is NO REASON to ever call me regarding a problem at the home.

32

Now I understand why land lords prefer to accept payment checks rather than electronic money transfer… :beer

33

rookieNYC - what are the profiles of the buyers you work with… what do they do for a living to be able to afford such high payments? It seems careless on their part…

34

Awesome stuff FdJake… Just curious as to where did the lead come from for this house?

35

rookieNYC - what are the profiles of the buyers you work with… what do they do for a living to be able to afford such high payments? It seems careless on their part

Invest,
There are some quality borrowers out there who cannot obtain a mortgage in this current environment…So to say that because they are choosing to pay higher than normal interest rates is risky on their part is unfounded…The premium that is willing to be paid for capital now is unprecedented…Lending money right now is equivalent to selling ice cold bottles of water in the middle of the desert…People are starving for it and will pay anything to get it…

36

fdjake…

I like your power of attorney usage…

did you simply put “Owner Financing Available” in your MLS verbage?

Thanks,
-Mike

37

I actually had the buyer for this house before I had the property. They looked at another property my realtor had and couldn’t find lending. My realtor told them he knew someone that would not only provide funding but also provide the HOME.

38

Why would you not sell every house that way Jake? What am I missing?

And these people dont really know you? Didn’t you guys meet when you sold them the house? Maybe im just not understanding. Ill do some research about LLC’s… im not very familiar.

To give out a loan for 140K like you did in this deal, do you have to actually have 140K (the loan amount) in capitol to pull of something like this for it to work? I would guess not because that would no longer be just a 30K investment on your part (what you bought the house for).

I would imagine you wouldnt need major cash reserves (like the total loan amount, even though your acting as the bank), because the buyer is essentially buying your house and paying you $1500 a month for a specified period of time. If they dont uphold the obligations on the loan, you take the house back, correct? In this way, its alot like renting to own. Your free of any obligations because they technically have Title to the house, until or unless they dont pay that $1500 a month.

Sorry, just trying to understand the full scope of how your pulling off what your pulling off.

39

This won’t work on every home you buy…the spread has to be right…In other words…the house has to be WORTH the $150K or NO BUYERS are going to look at it…That means you need to buy the house at a HUGE discount. Again…This is WHY I don’t buy houses listed on the MLS…If the house I purchased for $35K was listed on the MLS for even $60K, INVESTORS would bid it up to at least $100,000 because they would know the property could be sold for $150,000.

Another issue is LOCATION…These homes are mostly in good neighborhoods. Areas people WANT to live in and are willing to pay higher rates.

A lot of the homes I buy are sold within days of MY close…It’s a wholesale revenue machine…Very little risk, super short holding times, IN and OUT…Some of the profits from that are used to fund these long term capital appreciation private loans…It’s steady income with ZERO bullsh*t if set up properly.

And NO…I have never met these people…I did NOT sell them the house, my realtor does that. My attorney signed the P&S as a representative of my holding company. I did not attend the closing.
THINK about this…A BANK PRESIDENT does not go to closings…The BANKS ATTORNEY GOES as a representative of the lending institution. I NEVER want to meet my borrowers. I want them thinking they are getting a loan from a FUNDING COMPANY because they are!!! If I MEET THEM it PERSONALIZES The TRANSACTION…At that point I become some rich guy they know with a lot of cash.
By utilizing a power of attorney and a good lawyer, the buyers see an INSTITUTION making a loan…A BIG, COLD, NON FEELING INSTITUTION.

One more point…and this is VERY IMPORTANT…

Remember…I only laid out $40,000 for this house…That is EVERY CENT I have in it…

The LOAN AMOUNT is completely different and has NO BEARING on my purchase price. I’m out $40K…The LOAN amount is $140K with $10K down.

I DO NOT have $140,000 in this house…THE BUYERS DO!!!

40

Okay I see what your doing. Quite brilliant and simple actually. Under your strategy, your dealing with SOOOO many less properties, and get so much more cash flow with NONE of the repairs that tenants bother you with. You and Rookie are smart people… very nice. Thanks guys. :bobble