Re: Answering more questions … - Posted by Merle
Posted by Merle on December 14, 2000 at 21:42:11:
How much do you invest? An excellent question. Probably as many answers as there are those who would post an answer.
Years ago, a banker friend told me that to make money you had to leverage your time, talent, and/or money. No one would get rich working at an hourly wage. I really didn’t understand what he was saying.
When we started in this business, we had enough cash to buy two small houses. After we had bought them, we were out of business. That is, until we went to the bank and acquired loans on the houses. We used that money to buy a couple more.
You could eventually make some money that way. Let’s use your $25,000. You buy a $25,000 property, rent it out, and wait until you collect enough rent to buy another house. Obviously, that would take a long while.
You could use the $25,000 as a down paymnt for a mor expensive home and do the same thing.
But, what if you paid $12,500 down on each of two houses? Or, $5,000 down on each of 5 houses? Or, $1,000 down on each of 25 houses?
The financial wizards can tell you the “rate of return” on your investment each of those scenarios. Investing $1,000 with a $10,000 return is much better than investing $5,000 with a $10,000 return.
Or better yet, what if you held on to the $25,000 for an emergency fund and bought your houses with no out of pocket cash … finance 100% of the purchase cost.
I have yet to understand the calculation when you make $10,000 profit with no cash investment. Seems to me it should be better than any of the others mentioned.
In most of our purchases during the first 13 or 14 years, we not only invested -0- cash, but we also received money at closing. Now, that is a fantastic rate of return!
What I am really saying, Arlene, is that your question about how much of your money to invest is like the proverbial “cart in front of the horse.” You must first determine what you want to do in the business, How do you want to do your business? Are you going to buy and flip? Are you going to buy and hold for rental? Are you going to rehab?
Seems like so many people become caught up in the excitement and fail to adequately plan.
Years ago, as a salesmanager for a direct sales cookware company, my job was to train and motivate young college student who sold for us. Find the right button to push and these guys would work til they dropped.
But, that excitement did absolutely no good at all until you pointed them in the direction you wanted them to go. You had to tell them how many sales to make each day. Once they had a goal and a plan, then the enthusiasm made it all happen.
Ed has given you great advice. Read, study, learn all you can from everyone you can. Sift thru it all. See yourself doing the business. Pick out the areas that appeal to you the most. Confirm the validity of what you read … make sure it can actually happen … that soeone is doing it. (That doesn’t make it absolutely sure, no more than someone saying it won’t work makes it wrong.)
Once you have a business plan in place, the answer to your question will become obvious to you. As Ed says, you must prepare for mistakes … minimize them, but know they will happen.
Hope this gives you some food for thought. Feel free to ask any questions you have … someone here will answer. In fact, you will get a variety of answers … then, you have to decide (based on the sum total of all your research) which information to use.
Like most businesses, the more you know the better you will do … providing you avoid the wallering.
Merle