Scott Scheel and Dave Lindahl

General Real Estate Investing
41
No money down is incredibly risky. You are much more likely to crash and burn and be out of real property forever than to make $1.

ChiBroker,

The amount of personal money the investor puts into the deal has absolutely nothing to do with the success or failure of an income producing property. What is important is the debt load on the property and the resulting cash flow or lack thereof. The number one reason that new businesses fail is lack of cash flow and that is directly affected by the debt. Therefore, to minimize the debt, an investor could either put more money down OR buy the property at a big discount.

For example, let’s assume we had two identical properties with a market value of $500,000.

The first investor pays $500,000 for the property and puts down $100,000 (20%). His debt is $400,000.

The second investor works hard to find an owner who is desperate to sell and buys the property for $350,000. He keeps his cash in the bank and borrows 100% of the $350,000 purchase price. His debt load is $350,000.

Which investor is in a better position? Which investor is more likely to crash and burn?

I have many apartment buildings. That is how I do it.

Mike

42

I said I was investing in houses for years. We were talking about apartment buildings and, at the time, i hadn’t closed on my first apartment building yet. I have now closed on 2.

Seminars are not just about information. You can get all information from one source or another. they are about getting personal training and networking and expanding your mind to think creatively.

No money down deals are not the most ideal way to do a deal but its the only way some people can invest because they dont have any money. I bought my first apartment building no money down and then with the money I made on that one, I used to put money down on the 2nd. Yes, you get a better deal if you put money down but… what if you don’t have any money. Does that mean you shouldn’t do a deal. Or should you use your mind and be creative?

And, if you dont put any money down… how is that risky?. You have no money in the deal. and if it is risky, the more risky something is, the more profitable it can be. If you want safe, get a job and put your money in a bank.

I just like seminars because every one i’ve been to has taught me something that I used to make money. I’ve developed several relationship at them which have also resulted in my making money.

So you can be closed off to one way of learning but your the only one who’s going to lose. If I never went to a seminar, I would not have don’t a deal.

Brokers aren’t going to teach you anything if you don’t have money to buy a property from them. Mentors don’t have time to teach everyone newbie that comes alone and wants to sit at their feet and learn from them. They are not just business people, but they are PEOPLE and we are all motivated by, “whats in it for me”. No one is going to teach you anything unless theres something in it for them. If they do teach you things for free… then that’s because they have plenty of free time to teach because they don’t have enough guts to go out and do what they teach you. That’s why they have time to mentor newbies.

I got a mentor when I was a newbie and I thought he was going to teach me and all he did was got me to split the expenses for his house buying business. I paid for half the advertising and he got all the calls and I got nothing. He was mentoring me… and ended up using me.

Its been my experience that the only people who bash seminars are those who cant afford to attend. So since they cant, they don’t want anyone else to succeed so they say whatever they can to keep other people from taking steps to succeed.

If you talk to any of the successful investors, I bet that 100% of them have been to at least 1 seminar.

anyone ever go to school? Why? all of that information is in books. all you had to do was find those books and read them.

You can get the information taught at seminars in books… go to the library and read 20 books and question some successful investors (which they wont teach you how to become their competition) and do all the work and spend years of your time researching how to do this business… you could do that… but you wont. You say you will, you wont!

You could spend years doing research on your own, or you could attend one seminar from someone who did all that and save yourself years of time, effort and money.

if you have money or private lenders then its a whole different story… but what if you dont. does that mean you shouldn’t do anything?

Learn however you want. I learned a lot time ago, you get what you pay for.

43

Your scenario sounds great in hypothetical la-la seminar land Mike, but unfortunately it doesn’t play out like that in real world primary markets. In reality, if you are lucky enough to get a mere 100 BPS more on a 100% financing deal than on a 80%, your mortgage would actually be more on the 350k note than the 400k note(2% difference in monthly payments). That’s if you are that lucky. More likely you be looking at a much higher BPS spread WITH successful track record and excellent credit.
Furthermore, who sells a stabilized building that cashflows to 500k valuation at 70% of value? It would need to be an add-value situation: lease-up, repair, etc. Even in the same asset class, you are talking about two totally different investment strategies, add-value vs. stable performance. Moreover, if you are fortunate enough to find a primary market stabilized property that cash flows at 500k valuation for 350k, you will probably not be the successful offer on the property:

If investor A offers 350k with financing contingency for 80% and token earnest money
and Investor B offers 350k with financing contingency for 100% without earnest money, whose offer will the seller accept? The answer is obvious.

“Desperate to sell” owners generally represent problem properties in add-value situations, not stabilized properties.

I concede that MAYBE your strategy has a small chance in a secondary market, but what is the upside and exit strategy here? Negative YOY rent growth? Don’t think so. You will never be able to sell the property for more with less income.

Also, not sure if your 350/500 example was just for the sake of numbers, but who is interested in a 500k multi-family anyway?

I challenge you to show ONE successful primary market deal you have done that cashflows to a valuation 30% higher than your purchase price. I can show you a thousand that make sense with 20% down.

44

ChiBroker,

I never use mortgage brokers because they all think like you. If you were an investor in residential real estate, you would know better.

This is not lala land by any stretch. I have done almost all of my deals without using my own money. Small local banks do this all of the time. I work with 2 local banks and they both have given me 100% on multiple occassions. They keep their loans in their own portfolio. I’m not saying that you can do this easily without excellent credit and a history of performance. I have both. I am actually in the process of purchasing four small buildings now (2, 2, 3, and 4 units) and will be acquiring them without using my money. The seller is a desperate landlord who will do anything to get out of being a landlord and the bank is a small local bank. I am buying at less than 70% of the market value. The bank will have more than 30% equity as security and I will get 100% of the purchase price. The interest rate is 8.25% which is reasonable.

Stick with your brokerage business. If you plan on paying retail for residential properties, you will not make it in the rental property business! The vast majority of rental properties will not cash flow when purchased at retail.

Mike

Mike

45

Mike,

I’m not a mortgage broker, I’m a real estate broker, developer and investor. Commercial real estate exclusively. I have nothing to do with the mortgage side of the business. I don’t bother with residential investing(it’s practically a non-sequitur) and neither do my clients, because it’s not worth the time, wholesale or retail. What’s the point of a 2 unit property? Or even a 4 unit?

Also, 8.25% is not an attractive interest rate. Not even half-reasonable. Not even close. That’s a terrible interest rate from an investor standpoint. (What do you have, a 12 CAP 2 unit after expenses? Please, show me :D) 6.25-6.5% is an attractive multi-family interest rate on Class A apartment buildings. Even less for credit-tenant NNN property(i.e. Walgreens), which runs about 100 BPS above T-note, so you can be looking at sub-6% financing. Some will also put 40-50% down or more or purchase cash. Why? A 30 yr lease with escalations to an AA or even BBB+ Credit tenant at 7 CAP has substantial advantageous aspects compared to other asset classes(stocks and so forth). Best of luck with “residential investing”.

46

ChiBroker,

You are evidently so far above the rest of us, why are you wasting your time on this REI site? I think your time could be better spent counting your millions! LOL!

Good Luck,
Mike

47

I found the site and logged on for the first time the other day actually because I found out an associate had gotten a lead on an unlisted large office building from this site, so I had to check it out of course. I had never heard of the site prior. And this is labeled the commerical forum after all, so I thought I would read the posts and check it out. That’s my 2 cents, that’s all. If it makes you examine the commercial side of things, all the better. If you have 150k equity on 10 residential deals you did, Mike, and can liquidate at retail, doesn’t it make more sense to do one 7.5 Mln commercial deal or two 3.75 Mln deals than to go out and do a bunch more residential deals, as far as time and energy are concerned? Even if you are focused on add-value and buying at discount rather than stability and long-term income, there are good add-value commercial deals out there to be found, with less competition from the scores of folks all looking for that spread on a residential deal. Maybe it’s just my perspective, but low-unit properties have fluctuated with home prices, because they are in fact residential property, whereas commercial property is, and has been, about performance and income. The exception to the above commercial generaliztion is multi-family in overheated condo conversion markets, which suffered from severe CAP compression. I would like to ask the serious question though: what market are you investing in that you get positive cash flow after debt service with 8.25% interest rate on a small unit property? In your earlier example of a 350k with 500k valuation, your monthly debt service should be about $2,775. Assuming this is a four unit, to break even with 50% expenses, you would need to be charging $1,387.50 per unit per month. Just to break even. To get $500/month cash in your pocket you would need to be charging $1512.50/month PER UNIT! Are you renting 6 bedroom units in a secondary market where the average 3 bedroom rents for over $750? Exactly how do your numbers make sense, even when you are buying at 30% off retail?

Best regards,

48

Let me first preface this by clarifying that I do own a promotion company that sells both David’s and Scott’s courses and boot camps. I’m not trying to “disguise” myself as a student with no possible conflict of interest.

That being said, I have attended both Scott’s and David’s boot camps (multiple times) and I am very impressed with what they teach. I myself am doing commercial real estate, in fact I’m closing on 253 apartment units on Feb 5th.

It is true that this business of commercial real estate is real work, it’s not like winning the lottery. And it is true that if you find a property listed with a broker or a property where you’ll need bank financing to purchase it, 100% financing is the exception, not the rule.

But, that’s different than buying properties with none of your own money. You can easily find a good deal and bring on an equity partner to fund the down payment and closing costs. Essentially getting the deal with no money out of pocket.

Smaller deals are easier when you’re first starting out. When you’re doing deals in the tens of millions the lender is going to examine you VERY closely and a newbie probably isn’t going to be able to fake his way through the funding on that size of a deal. You will be amazed at what the lender will look at. If you stumble on this class of a deal as a newbie, you can still do the deal if you get an experienced equity partner who can get the loan. You may need to take a minor position in the deal but 30% of a $5MM profit is better than $0.

The easiest way to get started as a newbie is with unlisted, owner-financed properties. Both David and Scott focus on exactly how to find these kinds of deals and it’s not that hard. When you’re working with the owner, you can be a lot more creative than with a conventional lender and typically, your lack of experience won’t be a big problem if you present yourself correctly.

Bottom line, I owe the profits from my commercial deals to both David and Scott. It does cost real money to get trained but in my opinion it’s a valuable investment. I’ve seen people go at it on their own with no training and get absolutely cremated with a bad deal that they would have never done if they had the training. Hope this helps and I’m willing to answer any questions.

Layne Parker

49

I just returned from a 4 day seminar in Orlando put on by Scott Scheel. I have been investing in SFR for 27 years and have done well, recently doing a lot of lease options.
I will tell you Scott’s was a great event.
I am not naive enough to think we learned it all, but I honestly have some great tools to do a small deal or two (500K to 2 million) and feel pretty safe about it.

I am a little surprised that some folks who have not gone could have such strong feeling against these types of seminars.

The most valuable tool I took home was Scott’s software and the knowledge of how to use it and benefit from it.

I would recommend this seminar to anyone looking to get into commercial. That field is significantly different than residential. Different terms, appraisals, values, etc.

Brian

50

Scott Scheel, is the man. And for those of you who don’t think so get your heads out of the :flush

51

Alrighty busbrey…you’ve been a member for less than a week - you have two posts both shilling for Scott Scheel…

You’ve been called out – what’s the deal? You in danger of having your posts removed…

Keith
Moderator

52
Alrighty busbrey...you've been a member for less than a week - you have two posts both shilling for Scott Scheel...

Would that make him “Scheels’ shill”? :banghead2

53

Undoubtedly…or Scheel’s heel…

Keith

54

Actually, i went to the Scott Scheel seminar. He said that he did a substituion of collateral instead of paying off the seller @ refinance. He used the refinance to buy few more properties, put liens on THOSE properties for the seller…

ONe thing I have to say about these RE gurus is that they overpromise and underdeliver and WAY too oversell. For example, they promise you that if you take their coaching (for sub$scription fee), they’ll do deals with you. THey come up w/all the cash requirements, take 75% of the deal, and you do all the work. All great and dandy (b/c 25% of something is still better than nothing), but when you actually submit deals, you never hear a damn word from them.

My guess is the “coaching” companies aren’t the seminar speaker’s companies, but isntead RE investors like you guys who pay a portion of their revenue to the speaker in return for using his/her name… so they don’t really care to communicate to every potential deal finder.

55

i know david lindahl mentions to his students that if they find a great deal and its too big, he’ll partner up, has anyone actually had experience with this?