Road to REI - My Log - Introduction

General Real Estate Investing
1

I just wanted to introduce myself, My motivation for becoming an REI is that my job while a good one (Software Developer/System Administrator), won’t get me to where I want to be in life. I’ve been reading these forums for about 6 months now (wow didn’t realize it was that long), just trying to learn all I can. I’m not in a good position to start investing just yet because my new Wife and I are saving up all our money for the down payment on our Condo that is currently being built (We are scheduled to close Sept 28th 2007). Saving $5000 a month (between the 2 of us) for the last 6 months definitely gives you perspective on how all the little things you buy add up. I now think twice about getting that $1.25 bagel in the morning…haha. I even still have managed to put away $50 a month into a Savings account (as Robert Kiyosaki advises to pay yourself first) which will be used towards my investing in the future. I never look at that account but I think I’m up to $1700 or so, it’s practically nothing in terms of investing in RE but it’s a start. My Wife and I both have 800+ fico scores and good jobs.

At this point, I’m examining my future paths of education that I can take and slowly developing a Business Plan. I live in NJ so I’m keeping a close eye on the new legislation that is happening in terms of the Foreclosure market, which might change my investing strategy in the future. I’m also debating whether I should go for my Real Estate License. I am going to Join my Local REI Club (GSREIA), so If anyone here is a member there it would be cool to talk with you about it. At current, I’m mainly interested in doing Sub2’s, Lease-to_buy, and Renting. I would also like to stick to the area I grew up in which is Hanover Township in Morris County. It’s upper middle class area with home prices going from $350k to over a million.

Well I don’t wanna make my first post here to long, but I plan on updating this thread as time goes on, sort of keeping a log of my progress into the business. I’m very serious about this…So if you feel like following along I welcome you, or giving me your opinions on what I’ve done or am doing.

Thanks for reading

-Scott

Books I’ve Read
Rich Dad, Poor Dad
All the reviews on this book were correct, I loved it. This was the first book I read and it motivates like no other. It really changed my way of thinking in regards to making money and the power of real estate and the concept of Passive income. I recommend this book to everyone.

Rich Dad, Poor Dad 2: Cash Flow Quadrant
Another really good book and a good follow up to reading Rich Dad, Poor Dad. The book really got me thinking about which Quadrant I wanted to be in. Another great motivating book and in the end it helps you realize that it’s very tough to get the financial freedom you want if you stick to the left side of the quadrant. Recommended.

1 Minute to Rental Property Riches
This book is a must read once you’ve read up about Rentals from other sources. I say this because the other sources will fill your head with promise and thoughts about easy money. 1 Minute to Rantal Property Riches on the other hand is blunt and to the point and might scare you off of Rentals. So the combination of the two gives you a good level head. This book is loaded with good information and real world experiences and one of the best parts about this book is that it was written by a very active member of these forums, PropertyManager. Recommended.

The Art of the Deal by Donald Trump
I think trump is my new idol. This book is all about strategy, Mr Trump walked you through a lot of his deals and the reasons for behind his decisions to buy what he did. Growing up in NJ in the 80’s and 90’s myself, it made this book even more interesting. I remember hearing about all the trump buildings going up and it was great to read the story behind them now. Great book and a must read. Recommended.

more books to come…

2

hey scot,
welcome to the community :beer . this site & reiplace.com are
full of info on the techniques you have a passion for.
harriet(fl.)

3

Scott,

I think it would be a good idea to set goals before you develop a business plan. Define a single long term goal in specific and measurable terms.

For example, you might have any of the following goals
[]Retire by age 55 with $60K in passive income to support my retirement lifestyle.
[]Own 10 rental properties free and clear when I retire at age 60.
[]Generate enough current income from my real estate activity that I can quit my full time job in three years.
[]Increase my net worth by $1 million in the next five years.

The business plan that you might write to achieve each of these goals may employ a different investment strategy for each goal. The first question to answer is whether you want to invest in real estate to build a retirement nest egg (whenever you choose to retire), or whether you want your real estate activities to replace your day job.

Nothing says you can’t expand your horizons in the future, or even change your future goals. If you don’t have goals, how will you define success? How will you know if your “business” is on track or not if you don’t have goals against which you can measure your performance?

What is your long range goal, Scott?

4

Hi Harriet, thanks for the greeting :beer

DaveT, your advice is much appreciated. You are right, that I should figure out my goals first. It would be like taking a test and not knowing what the highest score could be. You need something to judge your success or compare your progress to.

The ideas that are currently knocking around in my head are…

1) In 5 years I’d like to be able to pay my monthly home mortgage payments with just passive income i’ve earned in RE.
2) Within 10 years I would like to have my net worth be 2 million
3) In 15 years I would like to be able to retire from my job and live off of my Real Estate investments and be able to play golf anytime I wanted :biggrin

-Scott

5

All laudable goals. I suspect that if you accomplish #3, the first two will have already taken care of themselves. Since each of your goals are constrained by passive income, you can focus your investment strategy on rental property acquisition.

Just looking at #3, how much income will you need in retirement to support your lifestyle? You stated this goal with a specific timeline, but we still need to refine it to include a specific dollar amount. How will you know you have achieved your goal if you have not determined how much you need? How will you measure your progress toward your goal each year it takes you to get there?

Let’s say that you project your cost of living in retirement to be about $50K per year and that you won’t have a pension or social security (yet) or any other source of income except your investments. If you have just $1 million worth of municipal bonds paying just 5% interest, you have achieved your goal of a $50K annual income that just could be tax free income. You don’t really need a $2 million net worth to meet your goal. You could just save $40250 per year at 5% annual interest for the next 15 years to accumulate $1 million by the time you retire.

I am guessing that saving that much each year is not feasible. Rental property is looking like a more reasonable path to get there. If you determine that a rental property in your market would generate $150 per month in cash flow, then you would need just 28 properties in your rental portfolio by the time you retire. With 15 years to go, that means you need to purchase just two properties per year to achieve your goal.

Is this doable? You don’t need $150 per month from each property from day one, you just need to average $150 per month, per property, by the time you retire.

Now you have a goal ($50K net cash flow per year in 15 years) and specific milestones to meet each year (acquire two properties per year) to achieve your goal.

From this point forward do you think you could develop an investment strategy for the next 15 years that concentrates on acquiring 2 rental properties per year and growing your cash flow such that your properties are generating $50K in net cash flow by the end of the 15th year?

Just defining your goal and some discreet objectives along the way will focus your thinking. Now you can break your investment strategy into its major components – finding the property, funding the purchase, managing the property, exiting the property.

Each major component has its own elements to flesh out. How will you find the property, what marketing techniques will you employ, what type of property will you target, and what investment criteria will you use to filter out the good deals? For funding the property, will you use your own cash and debt, use seller financing, bring in cash partners, purchase subject to? Will you perform your own property management or outsource to professional management companies and what screening criteria will you use for your tenants? Under what conditions will you sell a property?

You will probably need to consider other details such as risk managment. How will you mitigate risk to include what asset protection vehicles and insurance you may need to put in place?

Hope this is enough to get you started. You don’t need a fully developed plan before you purchase your first property. A lot of this can evolve as you begin acquiring property and learning what works and what doesn’t in your market.

6

IT eh? I think there’s something about IT folks that just get drawn to REI. who knows maybe it’s just me. (i’m a fellow IT guy as well can yah tell? :biggrin)

at any rate scott, i’m a member of GSREIA, if you’re going to attend the next meeting let me know. I plan on attending myself.

take care,
ryan

7

Dave T - I very much appreciate your comments and the thought that went behind them. I guess I never really understood how to properly formulate goals and a plan to achieve those goals. Thanks, I will work on them and update my original post.

Ryanpal - Yea, i’ve noticed, from reading these boards that there are alot of “ex” IT people here. Not sure what it is that attracts us to REI though, maybe it’s the lack of appreciation from the people you are servicing. For example, when you were in IT , did your phone ever ring and you not say to yourself “What Now???”. Phone ringing never equals good from my experience. But in REI, phone ringing = “potential customer”. haha…who knows.

Looking at the Calander for GSREIA, the next general meeting looks to be on the 25th/26th. Unfortunately I may not have the time to go in September because my wife and I will most likely be closing on our Condo that week and it’s going to be crazy. I will definitely be going to the one in October. Do you usually go to the one in Iselin or Newark?

8

im still in IT and yeah i can relate to the phone ringing. haha.

i go to the one in newark (its right by my job). see you at the oct meeting.

take care,
ryan

9

My name is Michael Harman I am also learning how to invest in Real Estate Property. Currently I am pretty much at the same place in my training as you are. However I need to generate some cash flow pretty quickly. Being that I am new I think I will look into some REOs, as they seem to me to be the safest way to go for a beginner. Where are you located?

10

hey rocketman, welcome to the thread.

REOs seem to be a good place to start looking for houses, but what do you plan on doing with the property? I’m going to get into the Rental business as it will provide me with the passive income i’m looking for as well as increased net worth.

As I’m learning the most important thing you can do in the beginning is set goals and create a business plan. I’m currently working on my now and it really helps you analyze what has to be done.

I live near Morristown, NJ. are you a fellow Jersey’n?

11

I am going to keep an eye on this one. Wishing you good fortune.

12

Over the past few weeks I’ve been searching the internet and reading the real estate section in the local papers trying to figure out what the market was for rentals in my area. I haven’t had to much success finding anything. I’m going to keep search as I know the information is out there (if anyone has a good resource, leave a post) and I’m also going to be asking my Cousin who is a Realtor and my friend who is an Appraiser, also next month when I go to the REIA meeting in my area i’m sure to ask some questions. It may just be that there aren’t a lot in my area, upper middle class. If that is the case, then my only option might be Morristown as it contains sections with lower working class neighborhoods. Just thinking out loud…

On another topic, skills improvement…I’m taking this time to increase my knowledge and skill of minor home improvements and repairs. Putting in light fixtures, designing and building shelves for my parents, minor plumbing repairs, etc… I figure these will all be good trades not only for my new condo, that is all set to close on the 28th :beer, but also in REI.

Outside of the above, everything else has been work, saving and REI research.

Have a good day!

-Scott

13

Nothing really new to update, I’ve been reading the book Real Estate Loopholes: Secrets of Successful Real Estate Investing by Kennedy. I’m enjoying it, the author supplies you with some good examples. When I’m done with this book I’ll post my review in the first post.

Also my closing on our preconstruction condo was pushed back a few weeks because the builder couldn’t get a permit or two which I’m assuming means the Certificate of Occupancy. Sucks cause now I have to pay another $180 monthly charge for storage.

Looking back, the best decision my wife and I made was to sell her old condo back in February and move in with my parents until our new condo gets built. Lots of headaches avoided and being able to save all this money and not to mention, who knows what we could have gotten for her condo today as compared to last Feb. :banana

14

Hi Scott,

I’m a GSREIA member for 2 yrs now, an IT person too for 15 yrs, and a Jersey’n.

My advice is join the GSREIA asap, and try to fill in as much info you can, then you can cherry pick what ever technique you would like to practice. “Action With Knowledge Is Preferred, but Action Without Knowledge Is Dangerous”, especially with the new legislation coming up.

And maybe if you realize that you need someone to hold your hand (preferably an old time investor), especially on your first few deals, joining a REIA group is the way to go for mentoring.

If you like, email me in private, so we could talk.

Hey Ryan,

Were you in the Bill Gatten Seminar?

  • T
15

Just another update since I haven’t updated this thread in a few weeks…

The closing on my Condo got moved to October 19th and it looks like it wil definately happen this time as others who have bought in the same complex have started closing. :beer I’m excited to finally get in there.

I did find out some news that didn’t make me happy in regards to the condo complex. The plan for the complex was originally suppose to be 16 buildings (we bought into the 2nd building), 10 condo’s in each, and of those 16 only the first two have been built so far. We’ll as we were driving by yesterday we saw an Open House sign so we stopped in. After talking to the realtor we found out that they scrapped the original design of the buildings and are going with all new design as they were having trouble selling them it appears (Big duuhhh in this market). The new design will be one floor condos (probably 3 to 4 levels) and elevators in all additional buildings. Who knows what this will do to the value of my condo but I’m worried to say the least. The original floor plans had lofts in all units giving them a townhouse feel. Plus the redesign is going to push construction back 6-12 months. Gonna be lonely around there for awhile.

On a better note, I’m looking forward to going to the REIA meeting this month. I’ve also decided to go the bird dogging route in order to build some capital for my future investing. I bought $Cashe$'s bird dogging book and it got me thinking, why wait to build up my savings thru conventional methods when I can bird dog now to get experience and also build my money that way as well. :bigthumbup

16

Scot, Please keep us posted. I’m interested to know how easy or difficult you find birddogging. I’m trying to understand it myself. I didn’t realize a fellow reiclub member wrote a book on bird dogging so I’ll go ahead and take a look at that. Keep up the good posts!

:beer

17

Been really busy the last few weeks with the closing fiasco of my condo, but it all ended up working out. I definitely learned how the process works better, so even though it was a pain in my rear it was a valuable experience. My wife and I moved in last weekend, painted the place ourselves and now await the new furniture so we can sit down. On a side note, if anyone needs a ladder go get the Little Giant. That thing is amazing, a little pricey but definitely paid for itself. It allowed me to reach the 10-20 ft ceilings and I also used it to get the couch up onto the balcony(2nd floor) because it wouldn’t fit through the front door. (Almost died but it was the only way)

With all this going on the past week I completely forgot about the REIA meeting which pissed me off, now I have to wait till next month. In the mean time though i’ve been having some good conversations with my appraiser friend who will be working for a wholesaler that specializes in foreclosures and he will be able to get me a list of foreclosures. I also have been talking with my cousin who is a buyers agent who has some good contacts with brokerages and lawyers who I might be able to use when the time comes. My cousin also can get me comps when ever I want and will put me on an email list for the MLS.

A question for everyone, when you go around looking at open houses to learn the area, what are you looking for in the houses? anything specific or just getting a feeling what a 300k house Vs a 500k house has to offer? Kind of a general question but if anyone has any learned advice I’m all ears.

Thanks,

-Scott

18

Scott,

I would suggest just looking at the whole package. Look at the neighborhood; the yard; the house, just everything. I would not take notes or do a thorough analysis. Just try to get a feel for the house and the associated price. Once you’ve looked at 100 or more, you will KNOW what houses are worth in your neighborhood.

Good Luck,

Mike

19

Looking at open houses is sort of a leisure activity. If you would like to get some ideas for rehabs or whatever then I guess looking at open houses is an inspirational thing to do. Appraisers are going to look at direct comps and dollars per square foot. If you don’t know a neighborhood, then you will definitely need to sort out which streets are coveted and therefore worth a lot of money, and which ones aren’t. Generally speaking, from an investment standpoint, if you want to see appreciation, go to the county (or county website) and figure out how many homes are owner occupied and how many are owned by landlords. Remember that landlords are investors and most of them are not going to pay retail for properties. Many of these professionals may ask for a seller carryback or owner financing. When you invest in a mostly non owner occupied area, you should be doing it in the name of cash flow, and making your appraisals based upon the income capitalization method or return on investment.

20

I finally get to update my “Log” with some new information. Over the past few months I’ve been continuing to read message boards and also found another board “reiplace” that is geared towards shortsales, wholesaling and subject 2 deals. I’ve been absorbing everything I can about wholesaling as that is the direction I want to go in.

Excitedly, I was able to finally go to an REIA meeting last week and it was great! It’s definitely the best place to be if you are an investor. The GSREIA is very organized and even offers a yahoo group for it’s members to advertise deals, vendor reviews and such. I just listened this time as I wanted to try and scope out the successful investors. I ended up joining and will be taking full advantage of the club going foreword. :bigthumbup

On another note, I’ve been reading “How to Win Friends & Influence People” by Carnegie, Dale and it is a very interesting book and I highly recommend it. If you have trouble being personable with your buyers or sellers this book could change your thinking a little bit. It makes a lot of sense, at least to me.

I’m definitely getting the itch to really jump into wholesaling, I’m going to look for REO’s on the MLS and see where that gets me for starters. From my initial searches they don’t really jump out at you off the MLS pages, I’ve only seen one property that was advertised as “BANK OWNED”. I’m going to try and hunt down the agent who listed that property and see if they have more. Wish me luck.

-Scott