Answering more questions ... - Posted by Merle

Posted by Ed Garcia on December 14, 2000 at 10:45:43:


Welcome to this forum and to real-estate investing. I’m sorry to say that, chances are you will make mistakes as a new investor, just make sure that there ones you can live with.

Don’t be afraid of making mistakes and follow your instincts. When doing a deal, always look at it in the worst-case scenario. After doing that, then, ask yourself if you can live with it. The nice part about real-estate investing the way we do it, is you make your money on the buy. So when looking at or working a deal, you predetermine you profit going into the deal.

Arlene, many of our participants are doing deals with no money so $25,000 is a nice sum to start with and there is no doubt you can be successful if you follow the guidelines you have set as your buying standards. To help you learn how to develop those standards, I’d like to recommend for you to visit the “How-To Articles” as well as the “Success Stories” right here on this site. In the How-to Articles, pay particular attention to “A Glossary Of Common Terms Used In Loans And Lend” written by Ed Wachsman. That will teach you real-estate terms as well as financial terms allowing you to learn the language. I myself have an article over there on “Making Money When You Buy”.

When in doubt, you can always come back to this board and there will be someone here who will be able to help and guide you through your storm, like JPiper, Bud Branstetter, MerleWoolley, Phil Hernandez and the list goes on.

I wish you much success in your future endeavors.

Ed Garcia

Answering more questions … - Posted by Merle

Posted by Merle on December 14, 2000 at 07:40:16:

Good morning, XXX …

In addition to your “lurking,” I suggest you read every book, article, etc on creative real estate investing. In fact, some of the cash you have available would be wisely spent for the various real estate courses available. We invested $8-9,000 back in the beginning. Most of the information you get from them will be thrown away. We felt that even one useful idea made the courses worthwhile. If the material was just rehash of another’s material, we sent it back and took the “hit” for the refund cost.

You must read this stuff with an open mind … verify every idea that appears to have merit … before implementing it into your own business.

Our business is about 90% our own ideas … but many of them stimulated from some other source of information. Our biggest problem with most of them are their moral and ethical views on dealing with people. We believe that for a transaction to be considered successful, everyone involved must receive their fair share of the benefits derived … in direct proportion to their individual input. Seems like many people are concerned with doing whatever it takes to get the most they can get. Doesn’t mean that you can’t modify some of their ideas.

I’ll put my answers to your questions below in the text of your message. Feel free to ask any questions … will always try to help. I’m sending this to you via email. I am also deleting your name and location so I can post on CREO. Your questions will likely touch others who go there.

Thanks and God bless …


I was very intrigued by your strategy. I am just now getting serious about investing in Real Estate. For the past couple of months I have been “lurking” on the Main News Group to find the Investment Strategy that would be the best fit for me.

Unlike many of the new investors, I have both good credit and some money ($34,000) to start off with. I also have a good friend who is a Real Estate Agent who is interested in being a partner.

The reason I am emailing you is to ask a couple of questions:

  1. Am I correct in assuming that you use traditional lenders to purchase your properties?

Actually, we developed a system for attracting private individuals … retired folks, mainly … to finance our purchases. Not to be confused with the “hard money” lenders you read about. These are people with money in savings, CDs, etc. They are more concerned with safety than return. However, they do want a greater return. There are a lot issues to answer in doing this. First is setting up your plan to avoid securities concerns. Recently, we accepted an arrangement for a very large line of credit at a local bank.

  1. What percentage does your lender require you to put down… 10, 20, 30%?

We borrowed up to 90% of the market or appraised value from the private investors … regardless of our purchase price. The bank will do 85%. They rely on our estimate of value … no appraisal. They simply drive by and take a picture of the house.

  1. You mentioned that you have purchased 400 homes over the last 16 years. How many do you normally own at any given time. I’m sure it varies, but an average is all I’m curious about. I’m asking you because I have a friend
    who has 5 rental properties and she said that it has become hard for her to purchase any more homes conventionally due to her debt to income ratio. (She may be using a lazy lender)

At present, we have 118 houses. Your friend is probably right when you use conventional financing. Conforming lenders limit investors to 4 or 5 loans. That is why we developed our private investor system.

I guess that is all for now. You are the first person I have actually requested help from because your objectives seem to be more in line with what I hope to accomplish. I am 28 years old and hope to leave my job and live off of my Real Estate investments when I am around 48 years old.
Although, earlier would suit me just fine as well!

Why wait 20 years? We have been “fulltime” since day one of our business … beginning however with 23 years of business experience and about $80,000 cash. Use your creative imagination to develop a plan for yourself … become a “student of” the others, but not a “follower of.” Become your own person.

Thank you in advance for your time and I hope to read more of your posts in
the future.

Re: Answering more questions … - Posted by Arlene

Posted by Arlene on December 14, 2000 at 08:34:19:

I have just begun my research into RE investment, found this website, am reading “Rich Dad, Poor Dad” and instinctively “know” that I can successfully do this once I have the information I need to push the fear aside and make that 1st investment. I’ve owned many homes as my residences but this time I want to invest in rental properties. This message seems to speak to some of my initial concerns, however, my circumstances may be different. What I’m trying to overcome or understand is “how much of my cash do I invest (I only have $25,000) without putting myself at risk for losing everything”? My husband’s salary is used for our living expenses (we currently are renting)and I’d like to make an investment with this cash so that we do not have to tap into his income. How do I overcome the cash flow problem with more confidence? Do I need to find a job that will take care of my possible cash flow issues surrrounding down time possibilities, maintenence or any other unexpected expenses which the rent will not cover? Hope I’ve made myself clear…please help with this initial first step or steer me in a direction that can give me some guidance. Thanks so much.

New rules for bank loans - Posted by ken in sc

Posted by ken in sc on December 14, 2000 at 08:20:54:

Merle is right in that Fannie Mae conventional loans would cut you off after I believe it was six rental house loans. But that has changed! Very recently, Fannie Mae has eliminated that rule. An investor can own 100+ houses and still get a conventional loan. I heard that Fannie Mae has been losing business due to all the non-traditional lenders out there now, and made this decision to attract more loans. I have just refinanced 5 houses that had inferior loans on them to new Fannie Mae 15 yr fixed rate loans in the low 7% range, so I know it is true. By doing 5 loans at once, I got good deals on closing costs as well, and only had to do that bank paperwork once!

If you have some loans you don’t like, this is a good time to check into refinance if you thought that you could not.



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.