Posted by Ed Eaton on March 08, 2005 at 11:02:51:
I assume that every realtor gets the occasional call from the distressed homeowner with equity who needs to sell “by next week” for one reason or another. If I had a bunch of realtors and/or birddogs referring these deals to me (I would take good care of them), why wouldn’t I be able to do a few per year? What am I missing?
Is this a good way to invest $500k? - Posted by Ed Eaton
Posted by Ed Eaton on March 07, 2005 at 21:14:51:
I recently sold a business and have about 500k to invest. I’m pretty busy though and don’t have a whole lot of free time.
I was thinking of just using this money to pay all cash for houses that I can get for 80% or less of FMV, and turn around and flip them immediately. Basically people who just need to sell fast for whatever reason.
I would assume I could have these deals brought to me by realtors and/or birddogs, etc.
I’ve owned rental properties in the past, and I’m not too interested in doing that right now. I’ve also rehabbed a few SFHs but I don’t have the time to do that now. So I’m looking for something simple…
I’m in the process of learning about commercial stuff, notes and paper, hard money lending, etc. but right now this just seems the easiest since I could get started immediately. And there would be literally no risk.
So what do you think, is it a good plan? Maybe I could even line up 50% financing so I could still close fast with no contingencies, but be able to do twice as many deals.
Re: Is this a good way to invest $500k? - Posted by Leo
Posted by Leo on July 02, 2005 at 11:38:15:
Would you be interested in investing in a new pre-construction professional medical office building collateralized by the property? The property is located in the Savannah, GA area (hot market for retirees). We do not have all of the numbers yet, but the ROI would be about 18 - 22% per year. Buy back would take place when the permanent financing is put in place, approx. 1.5 years. Thank you for your time!! Cheers Leo
how about a NNN property - Posted by David Krulac
Posted by David Krulac on March 08, 2005 at 15:54:39:
a triple net leased property would not take up your time and would throw off cash flow with your $500,000 asa downpayment.
Re: Is this a good way to invest $500k? - Posted by Mark (SDCA)
Posted by Mark (SDCA) on March 08, 2005 at 11:48:52:
I dont think 80% of FMV is enough of a discount. Closing costs will eat up most if not all of your profit.
Re: Is this a good way to invest $500k? - Posted by nancy
Posted by nancy on March 08, 2005 at 02:18:31:
find good deals takes a lot of time. it’s not like sitting there, deals will be brought to you. i don’t know what market you are in, most realtors don’t have a clue what is a good deal. in certain hot markets, don’t expect to find anything good deals on the mls. deals brought by wholesellers usually need some kind of work, which will require time and effort… again, selling a house takes time and work…
if i were you, with cash but no time, i’ll either lend out money to other investors or be a money partner. ofcouse you’ll need to do due deligence on the property and who you are dealing with, but in general, it’ll be less time consuming.
money lender: lend based on the value and equity of the house, get 12 + % return on investment within 6 months, use proeprty as collateral
money partner: work with investors, have them do the work of finding properteis, rehab selling, provide full or partial funds… must find the right person to work with, but once relation/trust is build, it can work really well… many investors are looking for money partner, it’s easy to find. find some one who is experienced in what their doing, ask for business referrence, portforlio and set up approperiate business entities/agreements before doing anything.
if you do decide to go this rout, i’m looking for partners. i’m in Dallas, texas area, got too many deals that we can handle… most are pre-foreclosure, cash deals that needs under 15k rehab… we have our rehab crew.
good luck
nancy
Re: Is this a good way to invest $500k? - Posted by starguy
Posted by starguy on March 07, 2005 at 21:24:31:
If you are paying cash then I would advice you to get 70% of FMV instead of 80%.
Re: how about a NNN property - Posted by Ed Eaton
Posted by Ed Eaton on March 08, 2005 at 16:22:43:
I’m just starting to look into triple net leases. Aren’t returns from these days relatively low i.e. in the 5-8% a year range?
How do you figure that? - Posted by Ed Eaton
Posted by Ed Eaton on March 08, 2005 at 12:02:26:
Assuming a 6 month holding period, my costs for property taxes, insurance, and a full 6% realtor commission to sell the house are roughly 7.5% of the value of the property. My closing costs on the buy side are very very little. If I buy at 80% FMV after you deduct my 7.5% costs, and another 30% of my gross profit for income taxes, I’m still left with an 11% net profit. I could turn the money an average of 2 times per year so double that and you end up with around 22% ROI per year. That’s not too shabby. If I could buy at 75% FMV my yearly ROI jumps to 33%. At 70% FMV my yearly ROI jumps to 46%.
Am I missing something?
Hmm, I was assuming that … - Posted by Ed Eaton
Posted by Ed Eaton on March 08, 2005 at 09:42:14:
I would be focusing on newer houses that don’t need a lot of rehab that I could buy for 80% or less of FMV. I know that’s a lot to ask, but they are out there - and I would only need to do a few per year. I figure if I had enough realtors and/or birddogs looking for me that they should be able to find me at least 2-4 of these per year. Is that an unrealistic assumption?
Re: Is this a good way to invest $500k? - Posted by Ed Eaton
Posted by Ed Eaton on March 07, 2005 at 22:06:01:
No argument there. Is it realistic to assume that I can have other people bring me these deals at 70% FMV i.e. realtors and/or birddogs?
Re: how about a NNN property - Posted by David Krulac
Posted by David Krulac on March 08, 2005 at 18:29:01:
I’ve heard of as high as 10-12% but your %ages are in the ball park. It a hand off situation for people who don’t have the time or inclination to get in the trenches and is pretty much a self managed proposition. National chains are usally good tenants, as well as high traffic areas like interstate interchanges for gas station/stores and fast food. One person I know scouts around for sites and locks them up with options or contracts then tries to find a good NNN tennat for the property. He basically tries to beat the big boys to a site. Another person leases a site to McDonalds, about an acre for $3,000,000 for a 30 year lease. He required that they pay the rent in one lump sum up front at the beginning of the 30 years. They of course bult the building and did the site improvements and at the end of the 30 years he either renews the lease or gets the building back.
Re: How do you figure that? - Posted by Mark (SDCA)
Posted by Mark (SDCA) on March 09, 2005 at 10:28:45:
I think you are ignoring a lot of little closing costs that will add up. It has been my experience that closing costs (besides realtor fees) are 3ish%. So it’s more like 3% to buy and 9-10% to sell. Take a look at a HUD-1. Who will close the deals? The lawyer/title company will want some money. Are you blowing off title insurance? I guess you could since you won’t have a mortgage. I wouldn’t recommend it. I mean since you are paying cash you technically aren’t even required to get homeowner’s/hazard insurance.
And it sounds like you plan on selling at 100% of FMV? So will you do any repairs at all? Most houses, especially ones sold at a discount need some repairs. Houses like those do not retail very well- which is why you can buy them at a discount.
Re: How do you figure that? - Posted by Tim
Posted by Tim on March 08, 2005 at 15:24:14:
It all depends on finding those deals at 70-80% of fair market value, & that depends on your market. In my area those type deals are not listed on the MLS, so Realtors won’t be bringing you deals. I got my license so I would have access to the MLS & I check every day, but the deals are not there. Maybe your area is different.
Re: Hmm, I was assuming that … - Posted by ski
Posted by ski on March 08, 2005 at 12:23:01:
how about preconstruction??? they can be gotten for about 30% less than after construction begins. and with the appreciation (here at least) you can make some serious bucks.
Re: Is this a good way to invest $500k? - Posted by Jack
Posted by Jack on March 08, 2005 at 10:29:28:
Depends on your market. But generally that would be a big no.
Re: Is this a good way to invest $500k? - Posted by starguy
Posted by starguy on March 07, 2005 at 22:24:56:
It is realistic.
If you are risking your money then you should get good return.
Obviously if you are looking for any profit then 85% is OK, but you should play safe with your money.
There is possibility that you will have some bad deals.
There are other things to cover such as closing cost, holding cost (insurance, taxes and utilities when you own), selling cost (advertisement, closing cost, realtor fees etc).
20% should be your net profit. If you buy it for 70% then only you can get 20% net after paying everything else.
Re: How do you figure that? - Posted by Ed Eaton
Posted by Ed Eaton on March 08, 2005 at 16:21:52:
You’re right, I wouldn’t expect to find them on the MLS. I guess I just figure that any active realtor must occassionally get a call that starts out with “I need to sell my house by next month no matter what, can you help me?” Obviously not very often, but realtors must get these calls. If I had 10, 20, 30 etc realtors who knew I could buy for cash and close in 2 weeks, I would expect to get at least a few deals a year this way once I made contacts with realtors and they knew I was serious. And then there are birddogs …