REI vets, I need the think tank to explain something please... kinda long

General Real Estate Investing
1

Hi All,

As you may or may not know, I’m going to be divorcing soon with small children.

Now, I’m a firm believer in solutions, not whining, but I’m a little stuck on something.

My strategy is:

to rent month to month for a while as the market drops lower.

Live in the city where homes are lower, but the taxes are higher. - I’m taking this approach because taxes are deductible ergo, I’m living for less. (correct me if I’m wrong.)

Schools could be better, so I will homeschool my kids as a supplement to the public school.

Purchase a home with equity in a growing or desirable neighborhood.

Live below my means to accumulate cash.

I aspire to control 10-20 milliion dollars in real estate acquired during this bust. I have paid off all debts (save for a car loan) and pay my bills ahead of time to get the fico up higher.

Working on 2 schools of thought: 1. cash is king, and 2. investing on borrowed money is a ticking bomb, I am unclear about how to have the finances to make these purchases. I will not have piles of cash saved to invest.

Does that mean that I am too late to the REI dance? What exactly does it mean, and what can I do to have the finances to purchase these properties?

Is this where OPM comes in via hardmoney and/or lines of credit via the banks,/credit cards? If so, what do I do now to secure those lines so that I’m ready to take advantage of these firesales and retire at the height of the next boom? :biggrin

How much money do I need in reserves? I have been working on the principle of 6-9 months cash living expenses per property. Am I off base?

Thanks, You guys rock.

Please advise.

2

Here’s my question for you…

What EXACTLY, have you been doing to let people know you want to buy a distressed home at a low price???

THAT is the answer to all your questions.

If you’ve been dealing with realtors your missing the boat. What you need is a SCORE! A DEAL! A BARGAIN! call it what you want, but ONE really good deal (and I mean REALLY good) and your off to the races.

Get some ads out there. Go with your local home town newspapers, they’re cheap and you can precisely target certain areas by using them.

Try this…Wanted: I am a cash buyer for a single family home that needs work. willing to spend up to $______________.
can close in 10 days. 555-5555

Now here’s the details… The PRICE you put in this ad IS THE AD! I go with a number that is VERY LOW. example. decent homes in my area are $ 200-250K my ad says $120,000. Now remember, you’re not going to get a ton of calls with this ad. BUT, the ones you WILL get are real deals. Most of these people are older, they owe nothing on the home but it needs work. TREAT THESE PEOPLE LIKE THEY ARE YOUR GRAND PARENTS!!! Be polite, VERY POLITE, be patient, offer to take them to lunch to discuss the deal. (after you’ve looked at the home)

I usually tell them that I’ll call then tommorow (after seeing the home)and I’d like to buy them lunch so we can discuss my price. It gives you a real opportunity to get to know them, understand their situation, ect. Lot’s of these people worry about LITTLE things. " I don’t have a lawyer?" That’s OK mame, my lawyer will handle everything and he’ll come to YOUR house for the closing and I WILL PAY HIM, not you. “I have a lot of junk it the house”
Don’t worry for a minute about that Sir, you leave what ever you don’t want and I’ll get rid of it, I do it all the time, it is NOT a problem. "The house does need work. " Maam, this is what I do, I’m going to buy your house and YOUR DONE, don’t worry about repairs, and don’t spend a penny more on the house. My lawyer will draw up a sales agreement that clearly states that this house is sold AS IS with all defects.
All you have to do it collect your check .

Know ask yourself this question… How would you feel if you buy a house for a small discount and then get a call on a REAL SCORE! It WILL happen IF you get the word out. Now, with that in mind just rent a home/apt in a decent area with good schools. Taking your children with you to look at a distressed home doesn’t look professional. I have kids, I love them, but business is business. If your home schooling them that leaves very little time for YOUR business. YOU WILL FIND A DEAL just be ready.

Just my 2 cents.

Get going, the questions will find answers when YOU find a DEAL!!!

3

Hi Pete,

that isn’t quite what I mean. The kids will be at school/babysitter, this is business afterall. Regarding school, I just mean to tutor them at home after school to make up any deficiencies.

The question was what do I do now to ensure I have enough cash and/or financing to do these deals? Finding them isn’t a problem. Making sure I can actually buy and close and have a cash cushion is.

4

Chosing to live in a city where taxes are higher simply because they are deductible is the wrong approach. It makes no sense to spend a dollar simply to save 25 cents on taxes. Property taxes are the bane of the RE investor. Should you decide to rent your property some day those high RE taxes will eat into your cash flow.

5

The worst time to go into a business is when you need the money from that business. Real estate is a business. It sounds like you need a source of income. I would suggest that you make sure you get your income secure first. You have done a good job with your credit and living expenses. What I would do is to establish a lifestyle that you want. That means move to the town you want to raise your family in. Get that established with enough income to maintain it and then do enough real estate to maintain that and then rely on that business after you are steady.

6

71, homes are less in the city, more in the county. Each has it’s pros and cons… You have a good point. The city is being revitalized and heavily invested… waterfront already exploded growth, older neighborhoods for rehabbing and flipping etc. I didn’t want to overextend myself by moving to the county because you need to be in at least 210k to start just for a townhouse. But your point is taken.

I have a salary from full time work. I am not using REI to provide a salary.

I want to use REI as a road to wealth to support 3 kids on my own. my point was that when I move, I will have a fixed amount of cash.

I was asking what I needed to have in reserves in order to invest.

We say cash is king. We say use OPM to invest. Some say investing with borrowed money is a sure way to bankruptcy.

So, I’m just trying to get clear about securing lines or credit, getting loans for my properties, and having enouch cash cushion to back it up.
As an investor,

7

I’ll say it ONE MORE TIME.

FIND THE DEAL, AND FINDING THE MONEY WON’T BE A PROBLEM!!!

You don’t have a deal yet. When you do, write us back, and I will PERSONALLY give you a way you can get it done with no more than $1000 to $1500 out of pocket.

You HAVE to FIND the deal FIRST.

FOLLOW THE ADVICE!

Let me give you an example… You find a home in the country that some old lady has owned for 60 years. (don’t tell me they aren’t out there, I buy at least 6 a year from these people) It needs work, for what ever reason she doesn’t want to deal with a realtor. (that’s the case in EVERY ONE I’ve done) She wants $175K for the house AS IS.

You then do your home work. find out what you can BLOW IT OUT FOR. This isn’t going to be “Flip this House” This is going to be a FIRE SALE because you have no money, no experience and no TIME.
You write a straight option on this house. Let’s say Fire sale pricing is $220,000. that price should be UNHEARD of. A give away!! She signs the option agreement, you pay her $1000 for 60 days, and then you ADVERTISE that bad boy. Tell her you’ll be bringing some investors by to look at it on Sat. and Sunday. And when your buyers call you tell them this…

Listen, I don’t have time to screw around here. If your not coming here with a check and a pen, DON’T COME. BUYERS LOVE IT!!! It’s sounds insane but I’m telling you, the harder you make it, the MORE they’ll want it. Add to that the FIRESALE pricing and YOU just created DEMAND!! Get the top 3 or 4 going at each other and tell them “first one at my attorneys office Monday morning with a $10K cashiers check deposit, gets the house!!!”

FIRST ONE DONE!!! You just put $45K in the bank, How long would it take you to save that amount???

Then you won’t be asking about HOW TO BUY without money, because YOU"LL have it!!!

Sorry to come off rough around the edges here. I respect your drive, independance, and planning. I have NO DOUBT you CAN DO THIS, you have to stop asking US questions and start asking people to call you with their HOMES!!

As far as your original question "How much money do I need? The answer is a lot. Especially NOW, let’s look at this for a second. You recently asked us to analyze a deal for you. It was too tight. You agreed, I think? That’s the PROBLEM today the deals are VERY TIGHT. The days of buying and flipping by cutting a lawn or painting are over. You can still make money on tight deals but you better have a pile of dough because it is taking LONGER and LONGER to sell these homes. If YOUR tight money wise going in this could EASILY BANKRUPT YOU.

I tell ALL new guy’s especially now. YOUR FIRST TIME UP TO BAT BETTER BE A HOME RUN, Because you might not get another chance if you screw it up. Look at www.iamfacingforeclosure.com It’s an extreme example but in reality what the hell’s the difference between being $2 million or $200K in debt, if you don’t have it your screwed either way.

Got get’em.

8
I aspire to control 10-20 milliion dollars in real estate acquired during this bust.

realnew,

That sounds like a pretty ambitious goal. I understand that your question is how do you finance these purchases. If you don’t have 10-20 million in cash, then you’re obviously not paying cash for them. By the way, cash is not king - CASH FLOW IS KING! Cash flow is what keeps your business running. Whether you own $500,000 worth of real estate or $20 million worth of real estate, you won’t survive without cash flow.

Working on 2 schools of thought: 1. cash is king, and 2. investing on borrowed money is a ticking bomb, I am unclear about how to have the finances to make these purchases. I will not have piles of cash saved to invest.

Both of these schools of thought are wrong. As I already said, CASH FLOW IS KING. Additionally, investing on borrowed money is NOT a ticking time bomb. That’s just silly. How many companies do you know of that don’t have any debt? Not many. The key is not to be over-levereged. For example, if you had $2.5 million worth of real estate with mortgages of $1.2 Million and a positive cash flow of $10,000 per month, that is NOT a ticking time bomb. However, if you have the same $2.5 million worth of real estate with mortgages of $2.5 million and a negative cash flow of $5,000 per month, that IS a ticking time bomb.

I borrow the money for my rentals mainly from small local banks. The key is to buy at a HUGE discount to market value and ensure you have positive cash flow.

Hard money is out of the question for rentals.

Good Luck.

Mike

9

Gentlemen,

thank you very much. I am now clear.

Mike, I’m all for cash flow. Pete, I assure you, your words have not been wasted on me.

Happy investing,

RN

10

[quote author=propertymanager link=topic=30108.msg140348#msg140348 date=1185643167]

I borrow the money for my rentals mainly from small local banks. The key is to buy at a HUGE discount to market value and ensure you have positive cash flow.

Hard money is out of the question for rentals.

Good Luck.

Mike

Mike, couple questions…

  1. How/what are you borrowing from local banks? The down payment? The entire purchase amount?
  2. Why is hard money out of the question?
11

abinvestments,

I usually borrow the entire amount for the purchase of the house.

Hard money is out of the question because the high interest rates and fees will destroy your cash flow.

Mike

12

Propertymanager

Thanks!!! That is what I thought, but better to ask…

13

what is hard money.

Never mind found the definition:

http://www.texasmortgagecenter.com/hard_money_loans.html?topic=hard+money+loans