I am a fan of Robert Kiyosaki, who believes that you should be earning at least a 200% to 1000% (or more) return on your money. It took me a while to get thru the noise of the promotional stuff he pitches, but if you listen well, you’ll see that he does make sense.
For some a 10%, 20% or even a 50% return on your money may be a great deal, but to me it’s not worth the risk, especially when property values are in free fall in many areas of the country. There are too many things that can go wrong if one expects that level of return, which to me is just like the exposure that you get in investing in stocks or mutual funds.
Returns of 200% to 1,000% are very much possible in real estate investing if you do it right. Those levels of returns give you the ability to take your time and invest thoughtfully, not emotionally or speculatively. To get such a return, you should never use your own cash or credit, nor should you accept a deal where you are hoping for capital appreciation (values to rise). You have to use other people’s money (not banks) with you in complete control of the deal.
By taking the time to re-engage the market, I have been able to see the real effects of the mortgage meltdown and will adjust my efforts accordingly.
Contrary to Brockvich’s claim, the pool of private lenders has not dried out completely. There are many potential lenders out there, you just have to spend a little more time working to find them and be consistent at it. My issue is the fact that I had not taken the time over the past year to broaden my base of lenders and have not communicated with them consistently enough to stay on their minds, especially when you see that so many of them don’t trust the stock market. This happened because I got more focused on wholesaling and avoided retailing.
I have to do a better job of identifying private opportunities by finding better deals and communicating the benefits to my market. That for me is the number 1 task I have this year.
Remember there are many ways to get a deal done and anybody with cash or credit can buy a house now (getting rid of it at a profit, that’s another issue). Use the method that makes the most sense for you.
Please see my earlier post today. If all one knows about buying properties is to use a bank loan or their own cash, they shouldn’t be surprised when they fail. Been there, done that. Not going down that path again.
I have no issue with spending $500 a month on advertising as it accomplishes several things that working thru a realtor makes impossible.
a. It allows me to build a timely list of the potential buyers in my market. If I use a realtor, I never know who these people are except for those that are represented by another realtor. This is extremely important as I need to know who the lease to own buyers, cash buyers, credit buyers and renter are at any given time to be successful.
b. I typically will buy 2 or 3 houses in the same area, which enables me to combine my marketing efforts and lower my unit marketing expenses. I never place an ad or send a direct mail piece with the addresses of the properties that i have for sale; I direct all potential buyers to my retailing website or voicemail system so that I can have them prescreen the buyers and record their information. This also enables me to build up my home buyers list.
c. Using a realtor that is not a flat fee listing agent locks me into a 3% to 6% commission that I have to account for in a market with receding home values. I have to honor that commission agreement if if I don’t make money; not acceptable. I use a flat fee listing agent as it costs only about $300 to get each house listed on line and about the same once the deal closes on resale. It also provides max exposure online and on the MLS.
I have no issue with realtors, they just don’t fit into my model for either buying or selling. As for their marketing efforts, paperwork and showing houses, for most realtors I have not been impressed. Open houses for the most part don’t work, especially in a flooded buyers market. It does not take a realtor to write up a contract; in fact in most cases I normally handle my own. As for showing houses I have for the past 4 years used an autopilot system where the buyers see the houses on their own after getting a lock box code over the phone from either me or one of my associates. If they like the house, we take their application direct and process them on our own. It’s not a big deal and not very complicated at all. Working with lender is not a big deal at all. All that’s required is for the buyer to qualify for a loan credit wise and for me to ensure that they provide the lender with the 5 - 7 documents required to close the deal, like checkstubs, bank statements, appraisals, applications, credit reports, verification of rents and insurance. I never allow the realtor to manage the process because i want to ensure that I get the deal closed.
The trick is to get a large number of potential buyers to see the houses, which is done thru our marketing. Why should I pay 3-6% of the sales price as a realtor commission when it isn’t necessary?
As for me jeapardizing good deals while I wait for private money, I disagree. Even though my market (Atlanta) is flooded with potential deals, the risk to me, my family and my business is too great for me take a chance on doing this the wrong way. I know how to find deals, how to structure them, how to repair and market them and how to get them sold. I have to make sure that i have deals when the private funds are there and avoid the temptation to use my funds. Yes I will lose some, but because I by the houses correctly, I’ll make much more than I would if I rushed into the deal the wrong way, using my funds.
As for private lenders, I provide them with much of the same info as Brockovich does, securing their money with a 1st position loan, at a fixed interest rate over a defined period of time, usually for about 60 months. They also get title insurance and hazard insurance as well. I do not make monthly interest payments unless I really need to (which is never). My interest rates start at 8% and go upwards, with equity splits if needed. I also guarantee at least 6 months of interest in case the house is sold quickly. I don’t provide profit and loss statements because most private lenders don’t want or expect them (of course if needed I can show my lenders exactly where we are in the process and how their funds are performing). I train my private lenders to invest on my terms. If they are unwilling, then I respectfully decline their support.
My business revolves around me securing private funds, not using my own. I have been down the path of using my money and credit and got burned badly early in my investing path. I believe that my model does work, if I didn’t I wouldn’t be were I am today. For all investors out there I truly believe that you have to believe in what you do and work it til you succeed. Along the way you will have many nay-sayers and distractors, however if you stay on track and engaged with your goals you will get what you focus on.
Brockovich does know what he is doing and will in the long term be successful, as will I and many of you. We are just taking approaches to the biz that reflect the realities of our separate markets.
Here are some tips I’d like to share – three ways to buy foreclosures. There are pro’s and con’s in each of these methods…
You can buy the foreclosure BEFORE the foreclosure auction. This is the best time to buy the foreclosure because you have NO COMPETITION. During this step, the work you need to do is do a shortsale. The disadvantage of a shortsale is that your profit is in direct proportion to what you can negotiate with the bank and shortsales take a LOT OF TIME AND EFFORT to negotiate. Also, in a shortsale…depending on the homeowner, it’s hard to tell them a shortsale is not going to help them keep their home.
You can buy the foreclosure DURING the foreclosure auction. This is the worst time to buy foreclosures because there is a LOT OF COMPETITION. You have amateurs who thought there are good deals during foreclosure auctions and you have representatives from the banks who will buy back the properties. The other bad part of buying properties at auctions is that you don’t have an inspection contingency. In some cases, you cannot even inspect the property and estimate the repairs. Buying properties during auctions is a terrible idea specially if you’re a beginner. DON’T DO IT!
You can buy the foreclosure AFTER the foreclosure auction. That is when the property was bought back by the bank foreclosing the property. At this stage, the property becomes an REO - which stands for Real Estate Owned. The advantage is that THERE IS VERY LITTE WORK other than making lots of offers and getting one of them to get accepted by the banks. There is some competition but if you click below, you’ll learn how to get around your competition and be the KING of REOs in your area.
Returns of this kind are not accurate, they ARE the sales pitch that you say you see through.
To get that kind of return, you say you have to not use your own money. Then your own money is actually earning 2% in a bank, and the rate of return is irrelevant, because if you make 1 dollar, you have an astronomical rate of return on the investment.
If you can make 200% to 1000% on your money, you pass Gates in a hurry, even if you only start with $100 dollars.
I am guessing that he using using those large return numbers because he is not using any of his own money so he can make up his own rate of return.
In actuality if you go back to the start of this thread on 01/05 till today the OP has made $5080 based on the fact that the wholesale deal he was working on actually closed. So in the 12 week span of the life of this thread that breaks down to $423 per week. While the return may be higher because he used none of his own money the return on time is terrible. The OP has done an incredible amount of research into breaking down the numbers for us and I give him credit for that, but all of that work has resulted in what amounts to about an $11.00 per hour job. People can say what they want about how risky it is to have some of your own skin in the game but in todays market HML’s and even private lenders want you to have something in the deal. Maybe after you have done a couple they will let you slide a deal through now and then without much of your money or credit. But not on the first, or the second, or maybe even the third. There are several lessons to be learned from this thread. The first is that you have to do a lot of research on several different properties because you will most likely have to submit offers on several properties to get one accepted. Investors are now competing with the spring market owner-occupied borrowers. I am working on an FHA OO purchase of a REO property right now. Tax value is $147K, and the Zillow value is $197K (which should be taken with a grain of salt). Based on the way this thread has been written I will use the tax value for true value and offer 65% which would be 95.5K. It was listed at 116K. There have been so many bids on the property that now the asking price has gone up to 133K. So there will be more work involved because of the competition. The next lesson is to have your money lined up before you start making bids because if one drops in your lap priced the way that the OP has submitted them you will need to be able to close very quickly.