Cashin' out ... NO MORE BANKS ??? - Posted by LightWalker

Real Estate Investing Retail
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Posted by Vic on August 07, 2009 at 18:45:47:

I hope it continues to play out this way. Although I still believe interest rates will have a negative effect on home values. Maybe other factors will offset that. As you say, history shows that to be the case. I guess time will tell.

There are still many facets of this & the more I read about it, the more good & interesting points I keep coming across. Also, the more complicated I realize all of this is. One thing for sure, we’re in for a ride of some sort.

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Cashin’ out … NO MORE BANKS ??? - Posted by LightWalker

Posted by LightWalker on August 01, 2009 at 16:53:23:

I’m thinking about selling a couple of my rental properties, and I wanted the groups wise advice. My thinking has DRASTICALLY changed when it comes to debt. To put it simply, I HATE BEING IN DEBT!!! I hate dealing with banks and lenders, and I no longer want to borrow money from banks, or anyone else for that matter. I guess you could say that I’ve had an epiphany… (LOL) =) … So with that said, here’s what I’m thinking:

I now want to buy houses for cash and then sell them. My goal would be at least $20k in profit after closing. Actually that would be $20k net… after all expenses - taxes… gotta pay good 'ol Uncle Sam… =^)

So here’s my plan in a nut shell.

  1. Cash out of 1 or 2 rentals to get “seed” money so to speak… :o) They have a combined cash flow of about $400.

  2. Go find a deal like normal from my marketing, clubs, birdogs, Auctions, MLS, etc. and pay cash for it. NO FRKN’ BANKS!!! =^)

  3. Get my boys to rehab/fix like normal

  4. Sell and make my $20k net…

Even if it took me 12 mos. to sell, it would be fine with me. NO MORTGAGE PMTS!!! Current market time obviously varies from area to area in my locale, but I haven’t yet seen an average market time of 12 mos. =) …

1st deal = $20k
2nd $40k
3rd $60k
4th $80k
5th $100k

Rinse and repeat until I can buy a rental FOR CASH!!! So let’s say that would be 10 deals at $20k. That would buy a decent rental at $200k. In some places that would buy 2 or 3. By the way, I’m a Broker, so I’d be listing/selling my own deals.

I know this is like the “old fashion” way of doing this, so let me know what you think. It’s also not very “creative”… (LOL), but I know it would work. I’m just absolutely over borrowing money… My credit is great… just don’t want to borrow any more.

A couple ?'s

  • Where would you recommend putting my cash until I find a deal?

  • What do you think of this strategy in the current market?

Benefits:

  • NO MORE BORROWING FROM BANKS…
  • NO MORT. PMTS
  • EASE OF PURCHASING AND CLOSING

Give me what you think are cons to doing this.

Thanks all…

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Re: Cashin’ out … NO MORE BANKS ??? - Posted by dave

Posted by dave on August 11, 2009 at 22:32:00:

Dont be overleveraged, cash deals are nice that leaves you not be a servant to the lender. Others that scream leverage it out and look at them now getting leveraged into BK.
As Warren Buffet has commented business with heavy debt is a sword to its throat. You never see a lot of investors with zero debt go belly up. They reap the rewards of inflation as well they just dont leverage themselves to oblivion. If we go thru a tough time in the market place depression or ect… and our currency is replaced or even revalued being debt free with cash could cause you to buy things for less then 10% on the dollar. Even real estate sells for practically nothing when heavy crisis hits and sticks with us for a long time. The guy sitting on a some debt free real estate and some cash is far better off then a guy with an empire of debt. That doesnt mean shun all debt. Occasionally you will get an opportunity you cant pass up that maybe the borrowed money is no recourse debt or subject to debt so you arent liable to signing up for the debt. I take a broad vision but a very critical vision of any business with debt attached to it. those with cash and no debt almost always win rarely lose. Risk adversion when investing is a personal choice. Some dance on the edge of the Grand Canyon like Trump while others just plug away and save and pay cash for deals like myself. I never place debt on property until the last one is paid off. I have about 80 apts free and clear and still do 1 to 4 units at a time never borrowing more then 10 or 20k which is relatively insignificant to the rest of my debt free portfolio. Once the debt is clear I hammer the next triplex or car lot what ever comes my way. I like Dave Ramsey he speaks good advice but borrowing money to finance a 4 unit when you are worth 3 million wont break you either. Just remember its your business and you have to sleep at night.
Leverage increases speed of wealth unless the house of cards crashes. Somewhere in between lies the best path of wealth building. My path lies very much into debt free investing w little or no debt except 10 or 20k for short periods of time less then 30 months.

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Re: Cashin’ out … NO MORE BANKS ??? - Posted by Ari Kumpis

Posted by Ari Kumpis on August 03, 2009 at 12:22:52:

You don’t like mortgage debt? Think about this: when inflation starts to rear it’s ugly head, and it will soon, it destroys debt, bonds/stocks, and equity. If you have lots of debt that’s secured by mortgages when inflation hits, you will owe less on them. If you have a $100,000 mortgage and inflation hits 10% (very likely) you now owe $90,000 in real dollars. It’s hard for most people to get their head around, but it makes sense. Remember, using the bank’s money to invest in income property is best because you are the borrower. J. Paul Getty once said “If you owe the bank $100, that’s your problem. If you owe the bank $100,000, that’s their problem.” There’s nothing wrong with having lots of debt, as long as it is secured with income producing real estate.

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Why limit your options? - Posted by Gene

Posted by Gene on August 03, 2009 at 11:10:58:

Right now with the economy in a zero growth…possibly deflationary trend…being in cash is the best place to be. Leverage is likely having a very negative effect on lots of folks right now…effectively their losses are being compounded.

But I strongly believe this will not last. We will eventually see high inflation (most likely in years not months…not exactly sure…crystal ball is still in the shop).

The feds have pumped record amounts of cash into the markets and its not going to be as easy to pull it out.

When things turn inflationary…the best place to be is leveraged out as far as possible with fixed rate financing. Inflation would increase wages and your rent but the fixed payment would stay the same. Savers will get crushed as their buying power dwindles.

A wiser man than I once said…Follow the trends and adjust, adjust, adjust.

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Re: Cashin’ out … NO MORE BANKS ??? - Posted by Natalie-VA

Posted by Natalie-VA on August 03, 2009 at 08:30:46:

This has been a great thread, LW. You all have said it so well, I really don’t have anything of value to add.

Cash deals are great. They’re easy, fast and less expensive. Unfortunately, I don’t have an unlimited supply, so I must turn to my commercial credit lines when I exhaust the cash. I am doing deals where other investors I know think my buy numbers are WAY too high. They use hard money. I am using cash. I am making 40k on a deal where they thought I was crazy.

I’m with Vic on the rentals. I am done. We emptied out our last one this year. We are offically landlords no more! The majority say to use lenders as leverage and that rentals are the road to wealth. Not for me. I resell 'em quickly…take the money and run! The road to wealth is living well within your means and SAVING MONEY. You must also set up and contribute the max to your retirement plans.

Dave T hit on the tax points. I get soaked in taxes. I also think that Congress will soon raise the LTCG rate an take away another reason to have rentals.

I’m rambling now. Thanks for the great thread.

–Natalie

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Re: Cashin’ out … NO MORE BANKS ??? - Posted by Jason

Posted by Jason on August 02, 2009 at 19:54:52:

I don’t know if I’ll be of any help to you, but I’ve been using a similar strategy since I started investing in real estate. I’ve always had a semi-full time job that pays well but gives me some free time to invest in real estate as well. I too am not a big fan of using banks but sometimes we have no choice. I started out by using my own equity in my home and now have moved to using all cash to buy, rehab and flip properties. As I started to accumulate more cash than I could put to work and make a fair profit I started to buy some land and rentals with cash then take lines of credit on them (rentals) as well. So when I’m doing deals I’m paying 3%-4% on the lines of credit in which I have rented for an avg. of 9%-13% after expenses. It might not be the get rich quick scheme but it’s definately working for me. As the market bottoms out I might be inclined to take on more debt and cash out later in a hotter market, but as of right now I’m sticking to what I know. I’d be curious to what areas you guys are working in? And what kind of deals you guys are doing?? I’ve done some flips/assignments and rehabs in the past but just doing rehabs as of right now. My biggest issue as of right now is finding enough deals that suit me. Good Luck in all your endeavours.

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Re: Cashin’ out … NO MORE BANKS ??? - Posted by James Harris

Posted by James Harris on August 02, 2009 at 07:24:26:

Has either of you guys ever considered using creative techniques to either buy or sell in your areas? Vic, you mentioned that you had properties just sitting around. Hav you considered selling using either a; Lease option, wrap around mortgage, or just Rent to Own? Because of the current credit crunch that most of the banks and mortgage brokers have placed us in, we are all tired of dealing with banks and the current lending institutions. The answer, become the bank yourself. Help correct the situation, let’s show them how to do it.

A good friend of mine once told me that people don’t buy houses, get this, they buy a mortgage. When this gentleman said that to me, I thought he had lost his mind. But, once he explained it, then it all made sense. He told me that the banks will only give/sell you a loan based upon your ability to pay it back, the house is only the collaterial to secure the loan. I also learned that most mortgage brokers will try to sell you a loan based upon how much they canmake off that particular loan. I was amazed to find out that there are some loans where a mortgage broker can make thousands off a loan, from the points they charge upfront and from the YSP, yeild spread premium. So to “sell” a house quick, you must sell the potential buyer on the payments or mortgage. My opinion only.

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You Must Be Reading My Mind - Posted by Vic

Posted by Vic on August 01, 2009 at 22:32:32:

Light Walker,

You have got to be reading my mind on this one. I’ve been trying to do the exact same thing you want to, pretty much for the exact same reason - sick of banks, sick of insurance co’s, sick of property taxes being raised - in general just sick of being dictated to. It’s all very ridiculous at this point.

I’m also a broker as well. Like you, I’ve also decided I want to stick to buying & selling. I don’t really care if I have rental property or not. The real money is made anyway in buying & selling. It’s not made in rentals. You may make some money eventually in rentals, if you get some appreciation (whenever that may be), but the headaches & stress of dealing with rentals is just not worth it to me. So whatever you do earn in rentals is really earned the hard way. It takes it’s toll on you after awhile.

The only thing is some of my rentals are in trendy areas & I hate to sell them at this point - cash flow is pretty decent on them, but I surely do hate keeping them & dealing with the everyday crap. I put one of my trendy area rentals up for sale about 3 wks. ago. So far I’ve had a few showings, but no offers yet.

I’m fortunate in that I do have a couple of houses paid off. I’ve been trying to sell one of them for a couple mos. now w/ very little interest. It’s waterfront property in an area where houses used to sell in a week. Now it just sits.

I have another in a so-so part of town that gets a few showings, but cannot get it sold. I keep lowering the price. This house is a good deal for somebody & in my opinion is underpriced, but I still can’t get it moved. It’s a nice corner house that should have sold by now. Every month I feed this house to just sit there. Sure I could rent it, but by the time I put a tenant in there & then fix it up again when they move out, it’s just not worth it.

I’ve just come to the conclusion that either way, I’m going to take a loss, it’s just when do I want to take it - now, or later after tenant moves out.

Anyway, my plan is to eventually sell at least these 2 & use that cash to free myself from the banks. Right now, where I am, the buying is easy, but the selling is difficult. There’s also a real possibility that values will fall further. I don’t want to be stuck with these houses for years & years waiting for things to improve.

So I feel your pain & in my humble opinion I agree with your thinking.

Vic

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Re: Cashin’ out … NO MORE BANKS ??? - Posted by Vic

Posted by Vic on August 03, 2009 at 22:30:53:

I like this theory. It’s very interesting. When you extrapolite this out beyond just the debt, how do you see it playing out? For ex. when inflation hits, using your theory, the mtg. is automaticall reduced in current dollars.

How does that effect the value of the house & how does it affect people’s ability to borrow? If inflation, drives up the value of a house, while simultaneously reducing debt (in current dollars), won’t that same inflation also cause interest rates to rise? Thereby causing people to not be able to qualify for as much of a loan, thereby indirectly reducing the value that you could sell that house for?

Just interested in getting your take or anyone else’s on this.

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Re: Cashin’ out … NO MORE BANKS ??? - Posted by Celeste-fl

Posted by Celeste-fl on August 03, 2009 at 14:45:28:

Thats the biggest lie in real estate. It is sold to the the public just like 401k are. If you are debt free,you can weather any storm. Less is more. I would rather have 10 paid off rentals,then 20 with mortgages.

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Gene and LightWalker both got your points! - Posted by Nan

Posted by Nan on August 06, 2009 at 12:49:27:

Hey Gene and LightWalker,

Both of you got your points… I am accually in a stage of making up my mind if I want to pay off one more rental home or use the money for flips… I love the cashflow from free and clear rentals (fewer rentals fewer houses to manage and repair)… but I also hate to tie up all my funds and miss out other deals…

So my decision is use a combination of both…

I will save up my cash now so I can purchase and flip all cash (2 houses at a given time) and and acquire more rentals using the equity in my free and clear homes… now my market is still good and low, time to get a few more good deals… the profit I make from flips will go towards paying off the mortages… eventually, I just wanna hold 20 free and clear rentals… not more than that… and live off the cash flow… and be able to manage them remotely… while I enjoy my life some where… :slight_smile: currently I only got 10… still a long way to go to hit 20 free and clear… but I am happily self employed, live off the rental income and be able to do the thing i enjoy, taken time off whenever I like… this alone I think is priceless…

so whichever way, as long as this is what you are comfortable and happy with, and makes you money as you have planed… is a good way for you!!!1

you both seems to be doing great!! keep up the good work!!!

:slight_smile:

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Re: Why limit your options? - Posted by LightWalker

Posted by LightWalker on August 03, 2009 at 12:08:07:

Hey Gene… thanks for chiming in. Read this:

http://www.usatoday.com/money/companies/2002-08-21-debt-free_x.htm

After reading that I think you’ll see a little bit more about where I’m coming from.

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Re: Cashin’ out … NO MORE BANKS ??? - Posted by LightWalker

Posted by LightWalker on August 03, 2009 at 09:00:21:

No problem and thanks for chiming in Natalie-VA. Good point on contributing to retirement plans. It’s not how much you make, but it’s how much you keep that tells the story. I haven’t completely got it all figured out yet, but this I do know… Some of my properties are going on the chopping block. The kid is Cashin’ Out. I will be a CASH PLAYER IN VERY SHORT ORDER!!!

I’ve read your posts in the past Natalie-VA… thanks again for chiming in. I’m in VA as well.

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Re: Cashin’ out … NO MORE BANKS ??? - Posted by Vic

Posted by Vic on August 02, 2009 at 14:41:17:

James,

Yes I’ve thought about doing L/P. Have done several in the past. The problem is I don’t want just 5K or 6K down. This particular house is a nice 4 BR. L/P’ers in the area of this house can do 5 or 6K damage in no time at all. It’s not a war zone, but is in the middle of Katrina land, which was once a solid blue collar area, but now you have one fixed up house next to another completely untouched one. (It’s a long story w/ lots of issues.) I’ve renovated this house twice now, once before Katrina & once after & spent a couple thousand more a third time when last tenant moved out. I’m just tired dealing with all the crap.

Cashflow when rented is about $400/mo., & even at that I still don’t feel like dealing with it. Now if I could get 25K down, I’d think about it.

I’d rather just sell outright for whatever I can get & be done with it. Take those profits & just buy & sell & not deal with the monthly aggravation of rentals, or l/p, etc.

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Re: Cashin’ out … NO MORE BANKS ??? - Posted by LightWalker

Posted by LightWalker on August 02, 2009 at 11:10:09:

Hey James… I was clued in to YSP about a year or so ago. I pulled some old HUD-1’s and almost threw up… (LOL)… =^)

I’M FREEEEEEEEE … I’M FREEEEEEE … =^)

Time to go to work. I NOW HAVE DIRECTION, A PLAN, AND AM COMPLETELY FOCUSED!!! I AM GOING TO FIRE EVERY LAST ONE OF MY LENDERS!!! I NO LONGER NEED THEM!!! I’m glad they were there when I did need them, but now… WELL IT’S A NEW DAY!!!

If you are a cash player, please chime in and share your experiences… Would love to hear your wisdom.

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Re: You Must Be Reading My Mind - Posted by LightWalker

Posted by LightWalker on August 02, 2009 at 10:57:31:

Hey Vic… LOL… We’re on the same page for sure my friend. I’m done with banks, HML’s, etc… A few months ago I stumbled across a radio show by mistake. The guy’s name is Dave Ramsey. This man has totally changed my paradigm. MY ENTIRE WORLD HAS BEEN CHANGED LISTENING TO THIS MAN!!! It was like being in a very dark room and then having the lights turned on. Once your eyes adjusted you began to see things with unbelievable clarity. Not only can you now see, but you notice that you’re standing in the midst of ACRES OF DIAMONDS!!!

My bankers, HML’s, etc., are about to lose a customer FOREVER!!! I SEE THE LIGHT, AND NOW I’M A CASH PLAYER FROM HERE ON OUT!!! MY CASH!!! I’VE JUST BEEN KICKING THIS IDEA AROUND AND JUST BY DOING THAT I FEEL EXTREMELY LIBERATED!!! I’ve got some deals coming my way, but I’m NOT going to do them until I can do them with MY CASH… Boy… I feel like I can FRKN fly!!!

Get rid of those properties and buy in “Blue Collar” areas, Vic…

  • Where do you guys and gals recommend keeping your cash until you do your deals?

  • How much do you hold from profits to pay taxes? 20%??

  • Have you set up an entity, or do you operate in your own name? BTW… I own my own R.E. Brokerage Firm, which is an “S”-Corp.

Any of you cash players out there, please chime in.

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Re: You Must Be Reading My Mind - Posted by Celeste-fl

Posted by Celeste-fl on August 02, 2009 at 07:34:22:

Location,location,location and buying the best house in a good area to attract good tenants is the biggest lies in real estate. This is sold to the public,just like 401k are. Buy a house in a great area and get a mortgage and cashflow $100 a month for 30 years. What a nightmare. Flip houses and take your profit and buy low income rentals( not warzones) for cash and build up to a nice monthly cashflow without banks and mortgages. How many rental houses do you need when you are cashflowing at $500 a month each. Then flip a few a year for fun money, I,m still flipping houses in a few weeks in a real bad market. How? I,m buying real cheap and selling real cheap.

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Re: Cashin’ out … NO MORE BANKS ??? - Posted by Gene

Posted by Gene on August 04, 2009 at 24:23:57:

Yes interest rates would eventually go up. Rising rates is one of the only tools the fed has to keep inflation from running out of control.

The ideal situation would be to have a fixed rate loan before inflation took hold. Wages, house prices, and rent would all rise while your fixed payment would stay the same.

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Re: Cashin’ out … NO MORE BANKS ??? - Posted by Ari Kumpis

Posted by Ari Kumpis on August 03, 2009 at 15:06:48:

Well, this is what has made Robert Kiyosaki wealthy. He’s said the same thing.