Now, let’s look at this a little closer.
I won’t get into rate of return, time value of money, and all of the other detailed analysis that make what this guy is telling you so far out there it’s comical. We’ll keep it sweet and simple.
First, raise $100K minimum to start in REI. Question for the investor, what does he want you to do with this $100K in funds? Invest it all in one deal? Now, how smart is that? With one property, if things go south, you have nothing else to fall back on.
But, I digress. Let’s say that you find 9 other partners and all of you contribute $10K, thus netting you the $100K that is “needed.” You find a property, fix it up and get it rented for the full $100K in funds. You get an awesome $1K a month rent. Taxes, insurance, operating expenses, etc. still cost $200/month. So you’re netting $800/month. Split 10 ways equals a whopping profit of $80/month each.
Same scenerio, same $10K from you, $90K from a lender borrowed at 8% for 30 years ($660/month). $660 + $200 = $860 or $140/month cashflow and you don’t have to split it 10/ways.
Now figure that $100K, putting $10K down (or into) a property, you can buy 10 properties. Using the same numbers as above, now you have $1400/month cashflow, not $800. That’s over a 55% increase in positive cashflow simply by leveraging your property.
Also, while we’re own this issue of not borrowing money, but using cash, that cash has got to come from somewhere. If you don’t have it personally, then you have to raise it. Now, how you can do that is fairly limited. You can steal it (not recommended). You can borrow from a bank(he doesn’t recommend it). You can get cash partners, or you can borrow privately. Now, whether you get cash partners or even privately funded, you’re still borrowing the money. With a bank, you’ll get about an 8% or so interest rate. With a private lender, you’re looking at 10-15%. And with a partner (or partners), you’re looking at a 50-80% interest rate.
Second, if “analysis paralysis” is a bunch of BS, then let me ask you, why have you not done 50 deals yet? Please don’t be offended. I’m just trying to prove a point here. Analysis paralysis happens because a new investor will study a deal forward, backward and all around the sides before even considering making a move, making an offer, etc. In most cases, they’ll find something, anything, that they question, which freezes them in their tracks. Then they either drop the potential deal or wait until another gets it and says “darn, I was close on that one.” That’s analysis paralysis, and in it’s simplest definition, it means FEAR. Fear is real. It’s not BS.
If you want to say that it’s BS, fine, but know this. If that’s the route you take, then forget about REI because you’ll never get a deal done. Why? Because, currently, you’re suffering from analysis paralysis, and if you don’t believe that it’s real, then you’ll never accept the fact that you have to overcome it. You are going to always be in the “almost.” You almost have your business plan ready. You almost have enough money. You almost have the right partners. You almost have the right deal.
Here’s a story that your cash friend will love.
My first deal, I put the last $1K down I had in my savings on a prop. At the time, I didn’t know where I was going to get the rest of the $44K to buy it, but what I did know was my market and that $45K was a good buy. I borrowed $3K to cover the rest of the down and closing costs, and I financed 95% LTV. A week after closing, I leased the property and did a cashout refinance, putting $11K back into my savings account after paying off the $3K, plus an extra $300 a month in positive cash flow.
Quick recap on that one. I made $10K just for buying it. I make $300/month off of it. Currently, the mortgage balance is about $50K on a property worth aprox $80K, so if I sold today, I’d make an extra $30K gross profit. And I financed it 120%.
So, am I going to lose my $1K investment if things don’t “work out?” Nope. Frankly, at this point, the absolute worst that can happen is that I choose not to make the mortgage payment and my credit gets tanked.
Raj