Borrow, don't borrow, borrow, don't borrow....AHHHHH! - Posted by Amy

import · May 22, 1999, 2:01am

Posted by Matthew Chan on May 22, 1999 at 19:18:00:

You (the individual) are not always liable. It depends on how you structure your operations. There are LLC’s, LP’s, corporations, etc.

Who says your credit will be ruined by borrowing? If you know what you are doing, your credit won’t be ruined. Even it is, it can be repaired.

You imply that no one is doing their homework before making a deal and just do things randomly. That is simply not true.

I think you need to do some reading up on legal entities, foreclosures, “bad credit”, etc. mean.

Better yet, go read Kiyosaki’s books. You might not like where you fit given the opinions you have stated. You have “poor man’s” thinking.

BTW, What is wrong getting a loan? Did you buy your house or car with straight cash?

Even if with a good deal, most people won’t have that amount of money lying around. Why give up a deal just because you don’t have the cash?

Why do you buy your car with a loan? Why not wait until you save it up?

Learn a little more and you won’t be as paranoid and as fearful of (POTENTIALLY but not Definite) negative events. You are only paralyzing yourself, no one else.

import · May 22, 1999, 2:01am

Borrow, don’t borrow, borrow, don’t borrow…AHHHHH! - Posted by Amy

Posted by Amy on May 22, 1999 at 02:01:17:

Can someone please clear the air for me??

There is such a mixed message in many of the courses I’ve read, that I’m beginning to get frustrated.

Some say, borrow money. Borrow low, lend high. Create a cash cow with low interest rates. Get lenders fighting to give you money. A million in debt is a million in net.

Some say, stay out of banks. Control don’t own. Never personally guarantee a loan (yeah, show me that one!).

What’s the deal??

I’m going crazy with this…

import · May 22, 1999, 1:43pm

Re: Borrow, don’t borrow - Posted by JPiper

Posted by JPiper on May 22, 1999 at 13:43:18:

If you’re looking for the “silver bullet of real estate”?..the holy grail?.you’re bound to be frustrated. There is no one technique that always works, and no one method that is better than all the others. Rather, there are different tools that can be applied under various circumstances.

Anyone who tells you NEVER “personally guarantee a loan” probably thinks they have your best interests at heart. And in a sense they’re right?.you can’t have personal liability if you don’t guarantee anything personally. However, as with most things in life, there is a flip side of the coin. A refusal to personally guarantee will lead to doing NO new loans?.which result in having to walk past certain kinds of deals. It may in all likelihood lead to a higher payment for your property?.which causes you to incur additional risk. See what I mean? Nothing is ever black and white.

Control don’t own? Wonder where I’ve heard that one before? I don’t agree with this one?.I own AND control each of my properties. NOT owning leads to disadvantages which anyone who makes this statement has failed to tell you.

Bottom line?.there is no one right answer to any of this. There are just choices?with advantages and disadvantages. That’s what life’s all about. Don’t attempt to find the holy grail?it doesn’t exist. And don’t believe anyone when they tell you there is only one right way. Anyone who makes this statement doesn’t know what they’re talking about.

JPiper

import · May 22, 1999, 1:37pm

Imagine this… - Posted by Jim IL

Posted by Jim IL on May 22, 1999 at 13:37:14:

Amy,
Each deal is different, and each seller and buyer are different.
Therefore there is no “set plan” to buy property.
That is why we are all here right?
To learn from each others experiences and see “how” others have overcome certain scenarios and made money.

So, why would you be reluctant to use someone elses money?
Why risk your own when you do not have to?
Imagine this:
you find 6 homes, all priced at 60% FMV.
(for some reason, the seller just wants out!)
You find a lender willing to loan to you all the required funds for purchase, at 9% interest.
So, you buy them,with no out of pocket cash.
You then turn around and sell ALL 6 homes using seller financing, with 10% down at 12% interest.
you now have CASH, from the downpayments, and a nice monthly cash flow from the notes you created.
You also get a good spread on the difference in interest rates between your loans, and the loans you are collecting on.
What is your yield on a $0 investment?

Kind of nice isn’t it?

So, using others peoples money (OPM), works for you and them.
They get a nice 9% (which these days, from an institutional lender is high), and you get cash now, cash flow monthly and cash later (if you made it a balloon.
Your buyers get a nice home now to boot!

Banks do this all day long. The money the lend is not theirs.
If you place money in a CD or savings account and get 3% interest, the bank turns around and lends it out at a higher rate, (say 8-9%).
The bank makes its money on the spread.
Which, when your talking millions, is a lot of CASH!!!

Sounds Win/win to me!

So, I say, OPM is the way to go!
And, guess what?
So do most of the REALLY BIG money makers in this world!
That my dear is what makes business work.

Just my $.02,
Jim IL

import · May 22, 1999, 12:31pm

Re: Borrow, don’t borrow, borrow, don’t borrow…AHHHHH! - Posted by Ed Garcia

Posted by Ed Garcia on May 22, 1999 at 12:31:34:

Amy:
Those who tell you not to use lenders money , obviously don’t know how to use it.

I once had a investor call me up and tell me that he was confused, because he was
trying to close a deal and wanted to know if it was all right to use his own money.

Sometimes when doing deals, we have to use common sense.

Amy, what ever system you learn is not carved in stone. These are all tricks of the
trade , to be utilized at your beckon call.

Personally I love using lenders money, because when negotiating a deal, I can
show it as a cash offer.

But I have no fixation about using lenders money.

The deal speaks for its self. When working a deal, it tells me if I can do a flip,
lease option, seller carry back(which is usually my second choice), or
make a cash offer which depending on the size of the deal, would include lender financing.

I am also in a position where I can make a real cash offer, and then refinance it at a latter date.

Leaning how to structure your deal, will be extremely important in either case.

Ed Garcia

import · May 22, 1999, 8:54am

Do you want safe or risk? - Posted by JSmith

Posted by JSmith on May 22, 1999 at 08:54:49:

Amy,

Why use your own cash or credit when you don’t have to?

If you follow the Mike Oldfields of the world who subscribe to Russ Whitney and William McCorckle theories, go ahead and use your own cash or credit as they teach.

I would rather not. Wouldn’t anyone else argue the fact that anytime you use your own cash or credit undue stress and anxiety goes way UP?

JSmith

import · May 22, 1999, 4:49pm

Re: Borrow, don’t borrow - Posted by Steven

Posted by Steven on May 22, 1999 at 16:49:05:

JP. I’v been reading alot of articles on Claude Diamonds Web site. From your post it seems like you disagree with most of his dogma. I’m new at RE investing and am going to start with L/O. Do you think I should stay clear of advice like Claude Dimonds.
Just wondering.

Steven

import · May 22, 1999, 2:28pm

Re: Borrow, don’t borrow - Posted by JSmith

Posted by JSmith on May 22, 1999 at 14:28:55:

If you’re looking for the “silver bullet of real estate”?..the holy grail?.you’re bound to be frustrated. There is no one technique that always works, and no one method that is better than all the others. Rather, there are different tools that can be applied under various circumstances.

Question: How do you call unnecessarily risking your own cash or credit a tool? Why can’t you option? Why can’t you build a buyer’s list and put the two together?

Anyone who tells you NEVER “personally guarantee a loan” probably thinks they have your best interests at heart. And in a sense they’re right?.you can’t have personal liability if you don’t guarantee anything personally. However, as with most things in life, there is a flip side of the coin. A refusal to personally guarantee will lead to doing NO new loans?.which result in having to walk past certain kinds of deals.

Why would you have to walk away from certain deals? Again, why not option? Why not assign? Why not bring in a partner? You can still assign for fast cash or bring in a partner for full profit. It seems you could be more creative with less risk.

It may in all likelihood lead to a higher payment for your property?.which causes you to incur additional risk. See what I mean? Nothing is ever black and white.

Control don’t own?

Where have you heard this before?

Wonder where I’ve heard that one before? I don’t agree with this one?.I own AND control each of my properties. NOT owning leads to disadvantages which anyone who makes this statement has failed to tell you.

That is fine that you have personally guaranteed your notes. Question: During a small vacancy and repair cycle, where will the money to pay notes and repairs come from? How long can you sustain vacancies and hidden repair traps? If extreme care, guidance, planning, and guts are not taken, your credit and cash are gone. Why take the risk when there are other alternatives?

Bottom line?.there is no one right answer to any of this. There are just choices?with advantages and disadvantages. That’s what life’s all about. Don’t attempt to find the holy grail?it doesn’t exist. And don’t believe anyone when they tell you there is only one right way. Anyone who makes this statement doesn’t know what they’re talking about.

Anyone who tells a newbie to guarantee if the situation is right does not know what they are talking about.

JPiper

JSmith

import · May 22, 1999, 2:34pm

Re: Borrow, don’t borrow, borrow, don’t borrow…AHHHHH! - Posted by JSmith

Posted by JSmith on May 22, 1999 at 14:34:50:

Those who tell you not to use lenders money , obviously don’t know how to use it.

I did not say not to use lender’s money. I said do not guarantee a loan because of undue risk.

I once had a investor call me up and tell me that he was confused, because he was
trying to close a deal and wanted to know if it was all right to use his own money.

Sometimes when doing deals, we have to use common sense.

That is correct. Common sense says if you have other alternatives than yourself, use them.

Amy, what ever system you learn is not carved in stone. These are all tricks of the
trade , to be utilized at your beckon call.

Personally I love using lenders money, because when negotiating a deal, I can
show it as a cash offer.

So can my partners. So can my private lenders

But I have no fixation about using lenders money.

Maybe you are emotionally and psychologically prepared to accept risk where risk is not needed, but I am not

The deal speaks for its self. When working a deal, it tells me if I can do a flip,
lease option, seller carry back(which is usually my second choice), or
make a cash offer which depending on the size of the deal, would include lender financing.

I am also in a position where I can make a real cash offer, and then refinance it at a latter date.

Leaning how to structure your deal, will be extremely important in either case.

Ed Garcia

JSmith

import · May 23, 1999, 3:45am

Re: my 2cents re: LeGrand’s “there’s no intelligent life between those four walls” - Posted by chris

Posted by chris on May 23, 1999 at 03:45:13:

That’s what he says about bankers. He takes pride in not dealing w/them. I’m not sure if that’s an emotional stand he’s taken because of any hassles he might have had in the past , or perhaps he objectively holds fast to the notion that to personally guarantee a note @ the bank is not required in the business of investing in single family houses. I’m no expert on him or the time value of money or real estate for that matter , I just can’t sleep & I feel like typing ( not to mention spelling poorly as well ) … …In a few years I would like to have the kind of clout to walk into a bank & have a large sum of $ available to me quickly because I have shown that I can be counted on. A 250K line of credit sounds nice. But right now, hard $ will do just fine. Higher intrest , yes , but it’s the availability of the $ that’s important to me right now , not the extra cost. I don’t have the situation right now to be jumping through hoops to get $ from a traditional lender. I don’t think many other newbies do either… I can get hard $ in a few days-- 65 % LTV , 15% intrest + a few points. The cost of money for a 60-180 day holding ( rehab ) period is about 5% of the repaired value. If the deal doesn’t work out , the property is taken from me and I’ll have a harder time extracting money from them again. The same problem w/a traditional lender brings more headaches. Of course it all depends on the circumstances though… Hard money , sandwich L/Os , flips , assignments , wraps & even some rentals will keep me busy w/out the aid of banks for now. As a matter of fact , I could borrow millions of dollars w/out ever dealing w/a bank my whole life. No red tape , just two ( or a couple more ) people agreeing on terms & signing the papers. … I know of a very well heeled investor in my REIA that owns hundreds of rentals & will avoid banks like the plague. He only holds the IRS in less esteem. I know of another equally well- to- do investor a little farther away that says; " owe as much cheap money these days as you can, 'cause these rates aren’t going to last forever" , and he’s talking about any kind of money - be it institutional or private. …I plan on building up credit w/traditional lenders so as to not close any doors in front of me , but if that doesn’t work out – well, that’s OK too, because I don’t really need them to build wealth… I think this might be part of what Mr. Smith might be getting @, said in a different way. He doesn’t seem adverse to borrowing money , just not the banks money. That seems reasonable to me. …JSmiths stance on asset protection & his lack of enthusiasm towards land trusts specifically … well , that’s another story.

import · May 22, 1999, 11:28pm

Re: Borrow, don’t borrow - Posted by JPiper

Posted by JPiper on May 22, 1999 at 23:28:49:

Steven:

I’m not familiar with Claude Diamond’s materials. But so that you may be reassured, I think lease/options are good way to get started in this business at this time. But understand that it’s only a start, and that the lease/option solution doesn’t fit ALL situations. But as someone new you need to start somewhere, and that’s a good choice. If I were you I would also consider Bill Bronchick’s material…compare it with Claude Diamonds. Again, I’m not familiar with Diamonds material, but I like Bronchick’s approach to things, his forms…and I think it would stand you in good stead.

JPiper

import · May 23, 1999, 11:20pm

Re: Borrow, don’t borrow - Posted by SCook85

Posted by SCook85 on May 23, 1999 at 23:20:11:

JSmith,
Now that I have read this post I do see where some of the anymosity was coming from in the post above.
I think you are out of line with what you posted here. I am one who has done over 40 deals in 11 months. I have done flips as you describe, and I am buying to hold.
I personally guarantee many of my loans that I do get. If I were not willing to personally guarantee my loans I may have only done 20 deals to date and made a lot less money.
I make offers, do deals and personally sign RESPONSIBLY. I have done my homework and know if I have a good deal that warrants my putting my name on the line.
I still commend you for your success, but advise you to rething what you are posting here.

SCook85

import · May 22, 1999, 11:23pm

Re: Borrow, don’t borrow - Posted by JPiper

Posted by JPiper on May 22, 1999 at 23:23:17:

Here’s my answers to your questions:

Question: How do you call unnecessarily risking your own cash or credit a tool? Why can’t you option? Why can’t you build a buyer’s list and put the two together?

Answer: First, I don’t ever UNNECESSARILY risk either my cash or my credit. I employ my cash or my credit in situations where I have carefully analyzed the risk, and have considered ways that I will get my cash back out. These would typically be situations where I am able to obtain an exceptional price because of my ability to react with some speed. They would also be situations where there would be a very large profit to earn. Could you option or build a buyer’s list? Of course you could. This is the preferred method for newbies.

Question: Why would you have to walk away from certain deals? Again, why not option? Why not assign? Why not bring in a partner? You can still assign for fast cash or bring in a partner for full profit. It seems you could be more creative with less risk.

Answer: I recently bought two houses for cash. These two houses were offered by a lender. They wanted a close within a few days. An option wouldn’t have worked. They weren’t looking for someone to work on selling their houses. They wanted cash, and they wanted it quick. I might have been able to assign, but frankly I had no desire to do so. Why would I give away an outsized profit in a circumstance where I was entirely comfortable with the price and my risk? If you assign all these deals you’re nothing more than a glorified and perhaps highly paid Realtor. A partner? Why give away part of the profit? Bring in a partner for full profit? How do you figure you made a “full profit” if you gave part of your profit to the partner? How do you figure having a partner is “less risk”? Have you ever heard of partnership problems? There’s nothing wrong with doing the deals in the manner you suggest?.if you want a job called assigning, or if you want to expose yourself to possible partnership problems, or if you want to function as a glorified Realtor with an option. These are all good choices for people without cash and credit?.who are completely risk averse.

Question: That is fine that you have personally guaranteed your notes. Question: During a small vacancy and repair cycle, where will the money to pay notes and repairs come from? How long can you sustain vacancies and hidden repair traps? If extreme care, guidance, planning, and guts are not taken, your credit and cash are gone. Why take the risk when there are other alternatives?

Answer: You got a good answer to this one from Phil Fernandez. Any investor worth his salt knows how to analyze his deal. He knows how to analyze his expenses, vacancies, and deferred maintenance. These are taken care of with the profit from the deal. Just a question of analysis.

Question: Anyone who tells a newbie to guarantee if the situation is right does not know what they are talking about.

Answer: I would recommend that you do a little study regarding the people who have made large fortunes in real estate. NONE of these have been made WITHOUT incurring personal risk, taking on personal obligations, and being responsible for those obligations. Perhaps you’ve heard of Harry Helmsley? At one time one the richest men in America?.he owned the Empire State Building. I recall watching an interview with him on 60 Minutes?.during which he said that he had NEVER SOLD a property. Unbelievable huh? Exactly the opposite of what you seem to be saying. Or perhaps you’ve heard of Donald Trump?think he ever got a bank loan? Think he used cash? Held properties? Personally guaranteed a loan? Read his books for the answers. Bottom line is that there is an appropriate place to use cash and credit?.and there are places where it is inappropriate. Right now, YOU don’t seem to know the difference. Right now my advise to newbies would be to learn the business, learn to analyze deals, learn what’s appropriate in specific circumstances. I would advise them as I did in my post, that there is no holy grail, that there is no specific technique that is superior to any other.

JPiper

import · May 22, 1999, 4:02pm

Re: Borrow, don’t borrow - Posted by phil fernandez

Posted by phil fernandez on May 22, 1999 at 16:02:17:

JSmith,

Obviously you’ve had something for breakfast this morning that is not setting well with you. My first question for you sir is how long have you been on this board? My guess is probably less than a week. Am I correct?

For your information Jim Piper is the backbone pertaining to real estate investing knowledge on this newsgroup. You seem to want to attack every point that he has made.

I’m not going to waste a lot of time here going over each point to show you why Jim is correct and you are wrong, but I will touch on a couple of your arguements.

If you don’t always personally guarantee your obligations, you will be closing down doors to profitable deals. Example : A bank has a REO worth $90,000 that needs $10,000 fixup. The bank will let the house go for $45,000. You have the potential to make $35,000 profit but you don’t have the $45,000 plus the $10,000 fixup money in your bank account. How are you going to get the money. You will have to borrow the money. Do you think that the bank that you borrow the money from will want you to personally quarantee that they will get their money. Of course. Don’t want to personally gaurantee the mortgage, the forget about getting your $55,000 to do the deal. And forget about making your $35,000 profit. Do you think the REO department of that bank will option you the property or let you assign the property. In 99% of the cases they would not. Again goodbye $35,000 profit.

You are also wrong about your statement of if you personally guarantee the loan, what happens if you have a vacancy or " repair cycle". What the heck is a “repair cycle” I’m assuming you mean repairs and maintenance on the property. Wouldn’t you analysis the costs of these even before you did the deal. This would fall under your due diligence.

Sounds to me that you are looking for the lazy way out. You don’t want to do your homework before and because of your laziness you don’t want to be held responsible. You are in the wrong business then.

And lastly saying that JPiper doesn’t know what he is talking about REALLY REALLY REALLY makes you look like you’ve been to this newsgroup perhaps for the first time today. Am I correct?

import · May 22, 1999, 5:12pm

Risk is relative and only a perception. - Posted by Matthew Chan

Posted by Matthew Chan on May 22, 1999 at 17:12:35:

More and more, I am beginning to understand that risk is relative. Life is a risk, it is just a matter to what degree. This is only a general statement but People who perceive something as being high risk probably are not as knowledgeable as they would like in that area.

I speak from personal experience regarding my business dealings and dealing with credit both personal and business. I have no problems using lender money for business because I know that it is an investment. Sometimes, the business benefit of getting something sooner outweighs the interest I have to pay. But that doesn’t mean I go out and buy fancy clothes, an expensive car, or jewelry. What I mean is anything that is business-related like advertising, operational costs, education, etc.

The way I see it is, money is replaceable and time is not. Sometimes you have to strike when the timing is right. If it costs money, so be it. Have to borrow money and pay some interest? So be it.

I don’t worry about about such things as debt because my fallback position is pretty good. Incidentally, my fallback position isn’t because I have tens of thousands of dollars in the bank, it is my knowledge and current experience because I know I can always get a job if I have to washing dishes or something. Most people strive and fight to keep their jobs. That is my worst case sceanrio.

What is the worst that can happen? Foreclosure, bankruptcy, garnishments? I used to be REALLY afraid of them. And I am still not too fond of them! But the difference between now and years back is that I know that it means and how it translates to how I live. I don’t like debt but I am not going to let it freeze me because I think it is “risky”.

You implied you are not emotionally or psychologically prepared to deal with risk. (That is very telling…) That is your perogative. But if you are dependent on what you can personally provide vs. using other people’s money when you have the option, it is your loss.

My point is RISK is relative and a state of mind. When I think something is risky, I have simply said to myself that I am not knowledgeable in that area and probably need improvement in. Again, a general statement.

Having read your posts, I perceive you as being fearful and risk averse. In RE, I have occasional pangs or fear too. But I know that is really my ignorance talking and as soon as I get more educated and/or experienced, those feelings will go away. In the last 4 months alone, much of my concerns have gone away.

So don’t take offense at this, but has it occurred to you that YOU might be incorrect and perhaps haven’t gotten to that level of confidence, experience, and inner peace?

import · May 22, 1999, 4:09pm

Re: Borrow, don’t borrow, borrow, don’t borrow…AHHHHH! - Posted by Ed Garcia

Posted by Ed Garcia on May 22, 1999 at 16:09:58:

JSmith,

I’m not sure what your purpose was in disecting my post.
But whatever it was, you fell short.

Ed Garcia

import · May 22, 1999, 11:41pm

Hey Phil - Posted by JPiper

Posted by JPiper on May 22, 1999 at 23:41:25:

Thanks for the comments…checks in the mail:)

JPiper

import · May 22, 1999, 7:04pm

Re: Borrow, don’t borrow - Posted by JSmith

Posted by JSmith on May 22, 1999 at 19:04:27:

I certainly do not mean to attack JPiper or Garcia and it is not meant that way. The attack came from them writing simultaneously that I am wrong and they are right. Just because they are the backbone of this site doesn’t mean another voice can have a contrary opinion. If they feel they are right, why not state their opinion instead of attacking?

To answer your question and the same question all the other posts keep pointing out. The question to me is, “What happens when you find a good deal and need cash?” Well, Jpiper and Garcia would lead you to believe that you simply get a loan. WHY - WHY - WHY???

Why take the risk or have POTENTIAL LIABILITY? It’s ludicrous to think and promote that getting a loan is the answer. The other statements that seem to be coming up is USING LENDER’S MONEY (that’s a laugh). Yes you are using someone else’s money, the lender, buy you ARE LIABLE.

Here’s the answer Mr Fernadez: If you weren’t so lazy, you would have already lined up a partner, a private lender, consider an option, delayed closing etc. so that your credit does not get messed up. I am not saying you are not liable if you misrepresent or commit fraud by using a private lender or a partner, but it does not mess up your credit.

Anytime you, JPiper, or Garcia say get a loan and use the lender’s money, I say don’t take a chance to get messed up and do your homework beforehand which you appear not to want to do.

Again, if you want to personally guarantee a note then more power to you. I will make the exact same money without guaranteeing. It’s a matter of work and creativity.

JSmith

import · May 22, 1999, 6:59pm

Re: Borrow, don’t borrow - Posted by JohnBoy

Posted by JohnBoy on May 22, 1999 at 18:59:17:

And that’s the way it is May 22nd, 1999!

import · May 22, 1999, 6:10pm

Re: Borrow, don’t borrow - Posted by Eric (NH)

Posted by Eric (NH) on May 22, 1999 at 18:10:30:

Amen!