Developing a strategy - Posted by David

Real Estate Investing
1

Posted by Ronald * Starr(in No CA) on October 23, 2002 at 20:31:25:

I received this response from David via e-mail. As I see no problem with privacy, I post here for anybody else to answer if they desire.

---* THE E-MAIL -------*

Hi Ron,
Thanks so much for your advice. What you say about the low interest school loans really makes sense. I read so many different things that constantly tell you that you should get yourself out of debt that it sometimes gets confusing. You also mentioned commercial brokerage. I plan on taking my career in that direction. Do most people who are in commercial start out in residential? How would you recommend I go about getting into this side of real estate? If you have any more advice about commercial RE or if
there are any good articles on the website that you recommend I would love to hear about them. Thanks again for your time and assistance.

-– RESPONSE ------

David--------------

You’ll hear a lot of advice between now and age 75. Much of it will not be good advice. Much will not take into account specific circumstances. Sorting through the nonsense, mistakes, and off-point advice is just part of the process of gaining some wisdom.

Getting out of debt is good, especially high-interest-rate debt, such as credit cards. However, I think your loans are low interest rate. Also, I think that credit grantors will not be dismayed to see college education loans on your record. As long as you pay as agreed, they should be ok. Realize that any loan you pay off is almost like investing at that interest rate. If you can find other investments with higher returns for that money, it is good to take those alternative investments rather than pay down the lower interest rate loans.

I’d suggest that you get a list together of the commercial real estate brokerages in your area, or where you plan to settle in for a while. Start calling them up–maybe in Jan and Feb, after the holidays. See if you can get a job as a broker’s assistant. You will get steady pay, even if they don’t have any commissions coming in. You will learn a lot. Try to find a broker that you are compatible with and who seems to be successful. You might ask about the reputations of the potential employer first before you commit to that person. From title insurance people, other commercial salespeople, the commercial loan brokers, etc. The commercial brokerage arena is much smaller than the residential, so anybody who has been in it for a while will be well known by the other experienced people.

There are probably quite a few commercial brokers who started out as residential agents or brokers and then switched over. People tend to like one or the other, not both.

You might want to start monitoring the Commercial Board forum of CREONLINE.COM website. It may give you some education. Go back and read old posts.

I don’t read it myself anymore. Most of the questions are people who don’t know anything about real estate and they are trying to find some way to buy big apartment houses with no money down. Mostly that is a futile effort and most beginners should not even start of with apartment complexes, I think. But a few of the posts will probably be educational for you.

Good InvestingRon Starr***

2

Developing a strategy - Posted by David

Posted by David on October 22, 2002 at 20:05:05:

I am looking for some thoughts or suggestions about how I should structure my overall investing strategy. Here is a brief summary of where I am and where I want to be.
-22 years old with near perfect credit
-Licensed real estate agent
-Six months left until I graduate college
-Several months experience working with investors in my area. Have a basic understanding of the rehab process and all the people involved.
-Have made several offers on rehab properties but have not yet completed a deal
-Have hard money lenders willing to finance most of my deals
-Little money to start with
-Want the cash flow of rental properties and big pay days that come with rehabs
-Approx $25,000 debt. Mostly school loans.
-Want to be debt free in a year from the time I graduate.
-Want to be earning six figures in three years from the time I graduate.

Given these things, I know that initially I will need the large sums of cash that come from rehabs. But I know I will find properties that would be great rentals that I won’t want to pass by. How much cash should I have in reserve before I start purchasing rentals? I don’t want to be bankrupt before I even get started because I have no tenants in my properties and can’t make the payments. When is a safe time to start building equity and cash flow? I am trying to develop a plan that will tell me exactly what sort of investment I should be pursuing at each stage of my investing career. If anyone has experienced success from a plan you used I would love to hear from you. I am having a little trouble ironing out my ‘blueprint for success’ so any insight would be greatly appreciated.

Thanks,
David

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Re: Developing a strategy - Posted by Sergio

Posted by Sergio on October 25, 2002 at 15:53:59:

What area are you thinking about?

4

Re: Developing a strategy - Posted by Mike (SoFla)

Posted by Mike (SoFla) on October 23, 2002 at 09:47:50:

Read JohnBoy’s post to beginners in the archives (titled “best way to get started in real estate”). Has some great advice.

Keep in mind that this biz requires building up cash reserves. I’m only 25 myself. But I’m currently fortunate enough to have a high paying job that I maintain while I build my RE biz up on the side. I’ve been advised by many successful RE investors that I should not consider going full-time until I have all my debts paid off, have a cash reserve large to provide for me for a full 6 months, have done a few deals and my job is actually “costing” me money b/c I’m making so much from RE.

That said, I recommend you start off on generating quick cash…wholesaling, L/O, etc. Sounds like you have some experience w/ rehabs, however I don’t recommend starting your career off here (though I’m not speaking from experience here b/c I’ve never done one). Nor would I look to buy traditional rentals right now if I were you. The cash flow from rentals is illusory. You need real cash that requires little to no cash investment on your part. What you have is time and enthusiasm…which is all you need for “Creative” real estate investing. “Traditional” real estate investing comes later when you have EXTRA cash.

5

Re: Developing a strategy - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on October 22, 2002 at 23:36:20:

David-----------------

Well, you’re either very ambitious and an extremely hard worker and make things really happen or else you are unrealistic.

I’d recommend against paying off the college loans. Those are proably low interest. You can make far more money with the cash that you would “Squander” on those loans. Pay them off as agreed, over time. Use the money that you were going to waste on those loans to help you fund real estate deals.

I personally favor long-term hold rentals. But, I am of the opinion that this is not a good way to start unless you are going to do real estate investing on a small time basis at the same time that you are earning your livelihood with a job or a business. Also, you are young, so it might be easy to buy the wrong things now. I’d recommend holding off on buying for longer term holding for quite a while. Maybe 5 years or so. It will depend upon what you need. Remember, there are three financial benefits from longer term rental properties: CAT. The Cash flow is usually pretty measily–about 7-10% a year on your equity–compared to what you can make with quick-turn properties. The appreciation? I don’t know where you are and thus can’t comment on that. The Tax Benefits? Now, this may be the issue for you. If you come anywhere close to making the kind of money that you would like to be making, you probably will find that buying properties for their tax benefits is important to you. So, you should concentrate on buying properties that provide good tax benefits. And do it when you start seeing the taxes eating you up.

You don’t mention what type of agency you plan to work for. If you are interested in big money and you are talented, you might want to head for the commercial brokerage work. Typical commercial agents make much more than typical residential agents. The businesses are different, as the buyers are not usually going so much on emotion as they are on the numbers.

However, a very ambitious, hard-working residential agent can make the kind of money that you wish. But, that person has to study the highly successful agents and not the typical ones.

I suggest that you talk to the fixerupper investors and try to really see if that approach suits you. Not everybody should be doing fixers. If you have not already read my “beginners success” post, I suggest you do so soon. Just put those two words into the search function at the top of this main board and then read the most recent version.

You might find that you make as much money just buying and reselling properties without doing any fixup work. Depends upon your skills and inclinations.

Just remember when you become fabulously wealthy to think of your beginnings and contribute to the Old Gurus Home generously.

Good InvestingRon Starr******

6

…here’s one point… - Posted by - Jimbo -

Posted by - Jimbo - on October 22, 2002 at 22:32:13:

Given your debt of school loans, your job (Just Over Broke - use that for your quotes!) may give you some $$$, but don’t count on that. Therefore, try to finance deals with 25% down (maybe a little less) without checking your job status, credit etc. and non-owner occupied investment properties. Stay under 5 units/property (a commercial thing, but you already knew that).

That said, you will need some money for those rehabs…and for that, I have no advice. Never done it. Time for the ‘Gurus’ to step in.

  • Jimbo - “…”
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Re: Developing a strategy - Posted by Sergio

Posted by Sergio on October 27, 2002 at 19:07:21:

I am investing in the Pittsburgh area.