My plan, my goals!

General Real Estate Investing
1

What’s up, I’d first like to thank everyone for helping me with all my questions and would still greatly appreciate any feedback/changes! FYI, I’m still very new and will be going to college where I will pursue a major in Management Information Systems as a fall back if REI doesn’t work out. Here is my plan, my criteria (actually propertymanager’s), and my goals. All feedback is great appreciated.

SHORT TERM GOALS: (Dates to be determines later)

  1. Drive by 100 houses, call the owners and set a time to take a look at the house, inside and out. After 100 or MORE we should be able to tell how much a house is worth by just LOOKING AT IT. THIS IS THE MOST IMPORTANT PART IN BEING SUCCESSFUL.
  2. Go to www.bls.gov for economic data (job growth, income levels, level of employment diversification, industries represented, and types of jobs)
  3. Get LLC set up
  4. Get qualified for loans
  5. Build our team
    • Should include:
      • Realtor
      • Real Lawyer (Commercial and Residential)
      • REIA (Other investors)
      • Small local banks
        • AmSouth (we know the manager of all branches in south east)
        • Bank Plus (we know the president of a local bank)
      • Real Estate Agent
      • CPA (for tax deductions)
      • Title Agency
      • Maintenance for BIG jobs
  6. Follow our criteria for buying.

ONLY BUY IF FOLLOWING CRITERIA IS MET:

  1. Maximum purchase price should be 70% or less of market value if no repairs are needed. If repairs are needed, calculate 70% of the market price and then subtract the repairs to determine the maximum purchase price.

  2. The minimum positive cash flow from any property we buy should be $100 per unit per month for houses costing less than $50,000. We determine the cash flow by subtracting the mortgage payment from 1/2 of the gross rent. For properties costing more than $50,000, raise the minimum positive cash flow as desired.

  3. Buy only properties that generate gross rents of 2% of the cost of the property (purchase price plus repairs).

LONG TERM GOALS

I will own 3 properties before graduating college. ALL SFHS

After graduating I will buy 5 properties each year for 5 years. Each property must have $100 monthly cash flow. First 5 will be SFHS

At age 30 I will have $500,000 invested into Real Estate.

For every 10 properties, there will be a separate LLC protecting our assets.

Thanks,

Adam

2

well it’s good you’re putting in the effort like this.

you’re trying real hard to devise this plan and that’s good too.

it looks like a plan that’s done by someone who’s new to investing - which is fine - i’m no Donald Trump or Robert Kiyosaki.

Adam, try and S I M P L I F Y.

“long term goals” don’t necessarily have to be 10 years down the road. saying you’re going to buy 5 houses a year and have 500k in real estate by 30, while definitely doable, is just so far off in the distance.

focus on the here and now. focus on what you can do NOW to make these things happen. take the paper you typed/wrote these goals on and stick them on your wall. i’m NOT saying drop them. put them in a high traffic area where you live.

focus on the HERE AND NOW -

define your REALLY SHORT TERM GOALS.

driving to see 100 houses is a start - but why would you drive around to see these houses…just to get a market analysis?

you can obtain this info in many ways without doing all that driving. i’m not saying don’t drive neighborhoods - do so, but not just with that single intention.

why have a realtor on your team, other than yourself? it doesn’t take much to become an actual broker. then you’re the broker. the rest of them, yes, go out and assemble a team. i think that should at least be a consideration of yours.

3

I plan on driving to 100 houses to know how much prices are so I don’t have to pay for an appraisal. I want to know how much a house is worth just by looking at it.

As far as the realtor is going, I don’t necessarily need one, but it would be great to find a HUNGRY realtor that can find me good deals.

4

Adam,

If you will be investing in one area, taking the time to go look at 100 houses in your local area is one of the best things you can do. By doing so, you will know your market which is a critical part of your education. Then, when someone calls you and says that they have a 3 bedroom, one bath house at 123 Elm Street for $40,000, you’ll immediately know whether this is a potential deal or not. You will be light years ahead of your competition and you will get deals while others are getting their comps. In addition, banks and other investors will call people who can make a quick decision. I get calls all the time from people who want to sell their houses and apartment buildings. I can tell them on the phone whether I’m interested or not based on my experience (looking at a lot of properties). I know what properties are worth and don’t need a realtor to give me their opinion of the value.

I think that both your long term goals and short term goals are excellent. All that is needed is to set a date for completion of each short term goal and get them done. These should not take much time. You could easily meet all your short term goals in a month or less.

By taking the time to devise a solid plan, you are FAR ahead of most new investors. That is very important if you want to succeed. The vast majority of newbies fail and developing a solid plan is one way to ensure that you are one of the survivors, not one of the majority of failures!

Good Luck,

Mike

5

So your immediate goal is to drive specific neighborhoods - target 100 houses.

you have to track each of these houses - comparing each of them.

Comparison Poorer - Add (CPA)
Comparison Better - Substract (CBS)

look at each aspect of the properties and compare them to one particular property, per 10 properties, or less - 5 properties, based on Sales Price or Asking Price - Sales price is always good because it lets you know what the Buying public is paying - Buyers always set the market value.

Supply and Demand influence what Buyers will pay.

anyway - for CPA - if a comp is poorer in conditions/aspect - you add a certain amount (market dictates this amount) to the property.

for CBS - if a comp is better in certain conditions/aspects - you subtract from the property.

the 100 houses - SHOULD be able to let you know, what buyers will pay for for a

fireplace
pool
jacuzzi
deck
hardwoods
landscape
sidewalks
1 car garage
2 car garage
no garage
etc.

this is basically a Direct Sales Approach to Appraising and i consider it an excellent way to learn market value - item by item.

especially if you’re a rehabbing investor.

short-term goals:
cost items you’ll need
maps
notebook or spread sheet paperwork (downloadable from a website?)
car
gas
mileage tracking system

i THINK many of these costs, if you have not set up LLC or other entity, could be your START UP COSTS - because you are still “deciding” on whether or not to start a real estate business.

that’s tax stuff - even though you have already made up your mind - to your accountant - you’ll want to track EVERYTHING. all your expenses - he/she will tell you exactly what type of expense it will be, but i’m guessing that these costs will be considered start-up costs - max deduction (5000).

prepare this Short Term Goal - with IMMEDIATE OBJECTIVES.

map it out and do it. TRACK EVERYTHING. if you don’t have a day planner - GET ONE.

again, start small, break goals down into tasks - hands on tasks. check them off every day you do them, track your work.

if you work part time now, or full time or are going to school - plan on this part investing to be at least 30 hours a week. it will be tough. you’ll become very “passionate” bordering on obsessed.
lol

it will be important for you to balance you life. i’m still struggling with that one.

6

First of all, what is CPA and CBS? Secondly, what are the most used floor plans, I’m asking this because I am going to set up a spread sheet mapping out different floor plans and each of them having certain variables. This will help me understand WHY one house is more expensive than the other, and vice versa.

I need a couple of the most used floor plans. Ex. 3 bedroom, 2 bath, kitchen, dining room, 2 car garage.

I set the dates but they are going to be tough to meet especially with school going on, but we will work hard.

Adam

7

it’s a basic rule for pricing market value

if the Comparison is Poorer (i.e. your prospect has a fireplace, but the comp does not)…you would Add X amount (what the market pays for a fireplace).

if the Comparison is Better (the comp has a fireplace and your prospect does not)…you Subtract X amount (what the market pays for a fireplace).

realtors, generally, should be able to know what buyers pay for in a given neighborhood.

8

Gotta love the realtors approach to appraising, atleast they try… :-X

9

Mike and Danny,

Do you guys basically use the same approach as Tom does to appraising? Also, will there be that big of a difference between neighborhoods?

Adam

10

There are 3 approaches to RE value; sales comparison (Tom’s explaination), cost approach, and income approach.

I was just messing with Tom because he’s going over to the dark side of realtors.

Sales comparison is usually the best approach for residential properties. If your dealing with residential properties, learn this approach inside and out. It’s hard to teach you “everything” about it in a forum, we aren’t all realtors.

11

Hungry often= inexperienced, so choose wisely.

12
Do you guys basically use the same approach as Tom does to appraising? Also, will there be that big of a difference between neighborhoods?

What Danny is right about appraising. However, I do not get an appraisal or comps prior to buying a property. I’m not against doing that, but you better be sure where the person supplying the comps is coming from (unless you have access to the MLS and can do your own comps). Realtors will often pull high comps to justify a higher sales price.

Speaking of appraisals. Have you ever noticed that bank appraisals just happen to come out exactly at the sales price. RIDICULOUS! IMHO, appraisals are a big joke! With the right appraiser, you could have a shed appraised for a million bucks!

Since I invest locally, I choose to KNOW my market. I am absolutely confident that I have a better understanding of the market value of a property in my area than any realtor or appraiser. After all, it is my business to know!

Good Luck,

Mike

13

that’s why it’s so important to develop a good relationship with a good real estate agent (not easy), because they have access to information - that when used correctly - can really narrow down pricing for the investor. they’ve got access to alot of real estate information that you’d have to pay 1500 bucks to get access to on your computer.

now you can learn your market in other ways - that’s a no brainer, but to me, if you’re going to be doing rehabs - you’ve really got to nail down what certain fixtures, additions, improvements to the real estate will do to its value.

that’s not so easily done by driving neighborhoods when you’re starting out. a good real estate agent (investor-friendly) will really kick butt in this department.

14

For rehabbing, I always look at the comparable properties (for sale) in the neighborhood before evaluating the subject. I just need to know a few things like;

What kind of countertops does the rest of the neighborhood have?
How many beds and baths?
Square footage?
Basement?
What kind of floors?
What kind of “extras” (hot tub, pool, movie theater, etc.)?
Is the floor plan open or closed?
Fireplaces?

Then the subject property can be better assessed by already having an idea of what is expected. Adding things above and beyond the comparable properties are almost always overimprovements and have no positive return. Adding a indoor basketball court in a neighborhood where no one has anything close, would be a waste of money. Adding too many square feet to an addition is another way to easily overimprove. Square footage is at it’s most valuable when the property is small. Additional acreage is a big one I see realtors making mistakes with. If the entire neighborhood is full of 3 acre lots, but your subject has 5 acres, those additional 2 acres are not worth the same per acre as the first 3.

Realtors aren’t required to have the greatest education. In my opinion, most feel overly competent to figuring out a value given they are interacting with the market every day. There is a reason they aren’t licensed to appraise properties in federally-related transactions. The sales comparison approach is not always as simple as knowing what the superior and inferior features are worth then adding or subtracting.

Mike,

Why don’t your lenders require you to get an appraisal prior to purchasing?

15

Danny,

The banks I use do require an appraisal for the loan. They order it and use their appraiser. What I meant in my post is that I don’t get an appraisal to make my purchase decision or decide the property value.

Mike

16

there are only a few must have’s when it comes to a real estate contract.

don’t you think a lot of people mix up what must be in a contract with what due-diligence is? they confuse the two and think that a contract has to have all these different things in it in order for them to purchase real estate.

heck, i was just blown away the first time i realized that you don’t need a lawyer to purchase or sell real estate! :smiley:

17

What happens when I call these 100 properties and they see two 18 year old kids show up? If I were them I would think it was a joke. Should I bring my dad or something if he is able to?

Also, I will not be able to get these loans. I have no credit and I’ve had two jobs, both in the summer. My dad has solid credit and has been running his own business for 20 years now, would he be able to get the loans and just basically give me the property?

Finally, I need to open a checking account for the business. I don’t want my tenants to know I’m the owner, they will think I’m the property manager. Therefore, my company doesn’t need have my name in it, correct? (They will be writing checks to the company) So my question is, what is YOUR company called?

Adam