Managing the Risks of Many Deals At Once (long) - Posted by Vic

Real Estate Investing Real Estate Financing
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Posted by JT - IN (St. Barths, FWI) on August 01, 2001 at 15:19:16:

JB:

This is like the proverbial question/statement of: “Quitting My JOB, or when should I quit my JOB?” I always recommend ppl hang in there as long as humanly possible, with another income, for this same reason, to be able to employ all cash resouces made from RE Investing, back INTO, RE investing. But, this too, often goes unheard, by folks that just can’t wait to cut the strings. It is so much easier to build the proverbial RE empire, when you are not relying on each deal to put food on the table, (I well know, as this is my source income, w/o a job), but this si not understandable by those that do not already “knwo it”, or learn it after the fact. Kind of like that “Hard learned lesson”, that you talk about.

JT - IN (from St. Barth, FWI)

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Managing the Risks of Many Deals At Once (long) - Posted by Vic

Posted by Vic on August 01, 2001 at 03:41:18:

Hi everyone!

This post is meant for the more exp’d investors doing, or in past, having done at least 10 - 12 deals a year. If you haven’t done a considerable number of deals, please don’t respond with your “theory” on how to approach this. I’m looking for real world answers that only the exp’d can provide. Oh & please don’t tell me about the PACTrust either, because if you read the thread below, you know that it’s not quite ready for LA yet.

Reading HR’s thread below about the risks involved in doing subject to’s has got me to thinking and reconsidering. That darn HR - always analyzing everything. LOL Anyway, I’m glad he does. I’m even gladder he’s a friend I can talk to regularly. Anytime I need a reality check, he’s there to provide it. :slight_smile:

My question. I’m curious to know how you’ll handle the risk of having many deals on the books at one time?

For example, recently I’ve had several opportunites to do bond for deed (land contract) or L/O on a few houses, but I shied away from the deals.

Here’s the reason, these houses were all priced above $125K & all had pmts over $900/mo. My fear is that if I did these deals, and 2 or 3 of them became vacant at same time, that I might not be able to keep up with the pmts.

Let’s say that I go out & do 10 of these deals. Let’s say I use all of the techniques bandied about here on this board - getting seller to pay first 3 pmts, make offer subject to finding buyer, etc. I find my T/B’s & do the deals. So now I have brand new T/B’s in all of them. Everything great, right! Or is it?

Let’s go one step further. It’s 6 mos. from now & my first T/B calls me & says he got laid off & can’t make this mo’s pmt & has to move out. Now that means I’ve got a $900 or so, pmt. I’ve got to make. Then, let’s say 2 wks. later another T/B calls me & also has to move out.

So now, in this scenario, I’ve got 2 big house pmts. that I need to make & no income from either of them. If I get enough like this, I could easily find myself defaulting on everything I own. The profits from the good deals would be sucked up by the costs of the vacancies - advertising, getting place fixed up, etc. Now if I don’t have enough cash flow to cover all these expenses, what do I do? I’m 6 mos into a 12 mo. L/O & now all of a sudden I’ve got these big pmts to make & no way to make them. What now? And remember, we’re talking about the upper middle class properties here, where it takes alot longer to get a good T/B who can affore $1000 or more a mo.

How have you more experienced investors looked at this?

Next problem. Most of my calls for pretty house deals, at least the ones with motivated sellers, are coming from the outer suburbs - suburbs further out than most. This is also where the new construction is. Most of the sellers calling me however, who are sufficiently motivated, have older houses, thus not quite as appealing as the brand new ones. Perhaps that’s why they’re motivated. They can’t get their house sold when someone can buy a brand new one for same price.

So let’s say I get a call from a seller who has a $130K house that is 25 yrs. old. I decide to do the deal & go out & put the property under a bond for deed (land contract). Now let’s say I’m able to put a potential buyer in the property, who has some sort of bad credit, but still good enough to where I can get him qual’d in 12 mos. to get a loan. My question. Why would my buyer want to buy this old house, when he can go get a brand new one for less money than what he would pay to buy this old house? Remember, my buyer now has good credit & can get any house he wants.

Let’s say that for whatever reason, my buyer doesn’t come through. I’ve now got this somewhat high dollar house sitting vacant for 2 mos., while I spend money to fix it up, advertise it, etc. What happens if I get 2 or 3 or 4 like this at one time. How would I be able to make these pmts.? That’s why I’ve been staying away from anything over 100K. But is this a mistake?

Do you more experienced investors see this as a mistake? In your opinion, are my fears unfounded in regard to these upper priced, but still middle class houses? How do you’ll approach the risk of having several vacant at one time? What is your strategy? How do you handle the worry of having several go bad all at once?

At least with the lower priced houses, you can always find someone to rent for close to what your monthly pmt is, but that may not always be the case with the higher priced properties. This has been my thinking up until now, but lately I’ve been starting to wonder if I’m leaving too many other dollars on the table.

So whadda ya think?

Vic

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All Great Advice…But One More Thing - Posted by Vic

Posted by Vic on August 01, 2001 at 21:58:37:

Thanks everybody for taking the time to respond. It seems as if most of you’ll reccommend the contingency fund to keep you going if things go wrong.

It also seems that many of you also reccomend putting much of the upfront cash into a contingency fund.

One BIG problem comes to mind though with this idea. Many times you have to give up your upfront money in order to realize the monthly spread & back end.

Consequently, there is no up front money coming in. So where would the contingency fund come from? Sometimes I’ll even come out of pocket with a few hundred, just for the spread & the back end. This make creating a contingency fund difficult.

I do agree with those who say to have a line of credit available, or a private individual to go to. That makes alot of sense. But do you really want to be borrowing money to feed a house that’s not producing any income at all. If you now have an additional loan to pay on, you may be setting yourself up even moreso for default. If you have a few properties, & they sit vacant for a couple mos., is it really a good idea to borrow funds, just to pay those mtg. pmts? How are you going to now keep up with the original mtg. pmt plus the new loan? And, to take it one step further, what happens if in 6 mos., you run into the same situation again, where you’ve got 2 or 3 vacant? Do you go out & get a 3rd loan to try to save you?

My reason for asking all these questions is because here in LA it is very difficult to find people who are current on pmts & willing to do a L/O or land contract. The overall majority of the people who are current on pmts, are very reluctant to do something creatively - they’re just not motivated enough yet.
Perhaps it’s the mindset down here, I don’t know. I do know though that when they’re a pmt. or 2 behind, they’re alot more open to creative ideas. But to bail them out, means no upfront money for you.

As a result, I usually end up dealing with someone who is either 2 or 3 pmts behind & therefore sufficiently motivated. But in order to make the deal happen, I’ve got to give up the front end. So there goes a major source of funds to fund a contingency fund.

Anyone have any creative solutions to this set of problems?

Vic

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I’m glad someone asked this question! - Posted by SCook85

Posted by SCook85 on August 01, 2001 at 14:37:30:

Vic,

This is the thing that I see putting more and more beginning investors under then anything else. I’m not fond of many of the different investing methods taught to newbies because they simply do not address the need for reserves. They always assume the best:

You will find a tenant right away,

Your tenant will be good,

Your tenant will pay you top dollar,

Your tenant will pay you on time every single month,

Your tenant will never move out,

Your tenant will never call you with a repair problem,

Your tenant will fix everything themself and improve the house for you while they live there forever.

These things simply do not happen on a regular basis and some never happen. It only takes one or two bad deals at a time to bring someone down. I know a guy who had a $5+ million dollar portfolio of notes leveraged to 70% and lost it all when 5% of the portfolio went bad.

You need to have reserves as Tim mentioned. Reserves cover those problems in bad times. In order to get reserves you need to also concentrate on doing deals that generate cash such as wholesaling or retailing. There is a cost to doing this business.

Yes you can do a deal with no money, but if you stay in this business and do numerous deals, especially if you are holding properties you are going to need cash sometime or another. I always caution people on acquiring to many properties to fast. I always advise them to sell something here and there to creat that war chest for a rainy day. The ones who listen usually do well. The others… well they aren’t investors today.

I hope this helps,

Steve

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Managing the Risks of Many Deals At Once (long) - Posted by JohnBoy

Posted by JohnBoy on August 01, 2001 at 14:21:06:

In addition to what the others said, what if you’re just starting out and you have bad credit, no credit cards, no money, can’t get loan, can’t get a hard money lender because your deals are over leveraged and you have nothing with any equity to speak of to get a hard money loan…you’re flat broke starting out!

The first step is to make any deals you do, “subject to you finding a suitable tenant/buyer within 30 - 60 days. The longer the better”, if you can’t find someone you can walk away from the deal!

When you do find someone, make sure you get enough down from them to cover at least 3 months of payments. NEVER touch that money and put it into a reserve fund account! You NEED to do this on EVERY deal you do in the beginning until you establish enough cash being held in reserves.

So lets say you would like to get up to $50k CASH sitting in your reseve fund? Get out there and get at least 10 deals that average you $5k each in up front cash! Put ALL of that into your reserve fund! That will give you the $50k CASH to cover any problems should they occur!

If ALL 10 houses went vacant at the same time and your monthly out going payments were an average of $1k per property, you would have enough to cover 5 months on all 10 homes. Now what is the likely hood of having ALL 10 end up vacant at the same time??? Pretty unlikely!

So what if you had 3 of the 10 become vacant at the same time? That would give you more than 16 months of reserves to cover each house!

After you get enough saved up in your reserve fund from socking away the up front money, then on the future deals as you increase your inventory, put at least half of the up front money away and put it into your reseve fund.

Now as you continue to grow you can keep half of the up front money and live off all the monthly cash flows coming in. Plus you can keep the back end profits when your buyers refinance and cash you out!

As you take any money out of your reserve fund to cover any vacancies, REPLACE that money with the money you get from your new tenant/buyer. If you stick to something like this then the chances of ever getting hurt will be extremely unlikely.

The problem is that most people that start out end up doing a deal and using that up front money for other things! YOU CAN’T DO THAT! At least not if you plan to survive long in this business! Otherwise you’re running around trying to find that next deal to generate some quick cash to cover a problem on another property because you spent all the up front money on something else!

Now you’re getting yourself into a big financial mess trying to rob money from Paul, just so you can pay Peter! That’s a BAD situation to get stuck in!

So in the beginning, get plenty up front and sock it away! Get plenty up front and sock it away! Get plenty up front and sock it away! Do that on every deal until you have enough put away in your reserve account and enjoy the cash flow each month you make off every deal!

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You have to do both… - Posted by David alexander

Posted by David alexander on August 01, 2001 at 11:27:14:

Some deals for cash and some for the long term… or bring in partners on the deals so you can keep the cash moving.

As far as buying houses in New Construction areas… that’s a No-No… in my opinion… learned that lesson the hard. The only good thing is all houses sell eventually… but when you competing with new homes you terms had bad better be real good.

David Alexander

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Re: Managing the Risks - Posted by jaim

Posted by jaim on August 01, 2001 at 10:42:15:

Jim
Obviously that these 25 years old ,now they have at least a 30% less value.This is a new reality.That is why they are VERY motivated

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Seek an ANGEL… - Posted by JT - IN (St. Barth, FWI)

Posted by JT - IN (St. Barth, FWI) on August 01, 2001 at 10:37:05:

Vic:

I usually have 3 to 4 new deals (rehab - retail flips)going at a time, in addition to a number of properties that I have sold on L\O and CFD, anyone of which can default at anytime, creating more cash flow demand on the old checkbook. With this prefqce, I want you to understand that, I truely “UNDERSTAND” your question.

I do co,pletely concur with Troy M, about risk mgmt, and the concept that he describes, as I use this thoroughly. In the event that you are unable to immunize yourself, financially speaking, then you could hook-up with an ANGEL, who like a Hard Money Lender, could provide an infusion of necessary cash, if and when the circumstances would require this new cash, should the circumstances require such. A pre-agreed upon amount, as a contingency line of credit, in the event that is necessary. Short of the fear of the “what if I get caught short” situation, you have no problem loving ahead with these deals, aand you should be qble to offer some interesting return to a cash-rch investor, not necessarily a RE investor, with enough security to quell any concern of risk.

You see, what you describe as a cash shortfall, on a monthly basis, is only a big deal, if you don’t have the proceeds, but to a cash-healed investor, the possiblity of laying out 2-3K per month, for 3 to 6 months, with a promise of a good return. If you were not in LA, or so far from Indiana/Ohio, I would be interested in such a consideration. Maybe you could find such an investor close by.

I hope this makes sense, as I am typing on a “French” keyboard, and the letters and controls are all differnet; a bit challanging!

Just the way that I view things…

JT - IN (from St. Barth, FWI)

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How about a ‘Contingency’ credit card? - Posted by Andrew

Posted by Andrew on August 01, 2001 at 08:45:46:

Vic,

Tim’s suggestion about contingency funds is right on target. However, if you don’t have $10k sitting in a bank or money market account just in case you need it, then maybe a credit card (w/ convenience checks) would do the trick.

I get credit card offers all the time with $25k to $50k lines of unsecured credit and currently have 2 of them. Don’t use them much, but they are a nice, cheap insurance policy and can be used with the stroke of a pen.

Of course, as with any strategy, there are pitfalls to using credit cards lines. Eventually I hope to have bookoo cash lying around, but that just ain’t the case right now.

Anyway, that’s my 2 cents . . . keep the change. :wink:

-Andrew

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Risk Management - Posted by Troy M

Posted by Troy M on August 01, 2001 at 08:41:17:

I know, I know, you can be a real estate investor with no money and no credit.

However, if you?d like to stay a successful REI or any other type business person (this is a business isn?t it?), you?d be well served to practice sound financial management and sound business principles. The answer to your question is:

  1. Build and Maintain Financial strength/resources

If you have no money and no credit because of poor personal finance habits, IMHO your REI career is doomed lest you learn new habits. YOU?LL NEVER MAKE IT IN ANY BUSINESS IF YOU CAN NOT MANAGE FINANCES. Most personal finance books recommend maintaining a reserve fund equal to 6 months expenses. Business finance is a little different; I maintain reserve resources (not necessarily cash) to weather unexpected expenses. But, the bottom line is you have to build your financial strength as you build your portfolio. Leverage is highly touted as a major benefit in real estate, and it is. But, it can be abused, overused.

  1. Diversify

To borrow some material from Scott Britton, real estate investing is like a three legged stool, you need cash, cash flow, and equity (or equity buildup) to be solid. (By the way, Scott is IMHO one of the guys who does ?tell it like it is?. Check out what he says about leverage. And, no, I don?t work for Scott).

What all this means is I haven?t built my business doing subject-to deals, L/O’s, or owner financed deals while spending all of the profit each month, and depending upon others to keep up their payments to me. I do rehabs to generate cash. I reinvest profits to build financial strength I take back notes sometimes to increase cash flow. I do a subject-to every now and then to increase cash flow or equity.

As for higher priced homes, I stay away from them. I like the homes in the 50-80k range. In my area that’s just under the median price range. Marketable, not war zone, and affordable.

BTW, if someone can buy a new home for what these folks are selling their 25 year old home for, …is that a deal?

Troy M

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you need reserves… - Posted by TRandle

Posted by TRandle on August 01, 2001 at 07:46:56:

Vic,
You will have vacancies at times and sometimes on multiple properties at the same time. If you don’t have the reserves to cover the payments, then one alternative would be to put the option fees from your TBer aside to cover potential problems. It is essential that you have contingency funds and contingency plans. Things will happen and although you can’t really predict what they are, you can predict that something will happen so you must be prepared.

In the past I too have focused on an average house in my area, which runs about 150k with payments of $1,500. Vacancies add up quick with that payment and it takes quite a few cashflowing houses to cover one payment on a vacant. I can promise you that if you have more than a couple vacant that Troy’s suggestion of making sure you get a large sum upfront becomes much less a consideration. You gain a better understanding of “motivated seller”. LOL!

Don’t overanalyze why the buyers will want your house. If the terms are decent and fair, you should have plenty of buyers as long as you don’t exceed the median price range by too much.

My current plan to manage risk is to scale back to houses below the median price range. It’s easier to cover the payments and the buyers aren’t as picky and there’s a larger group of buyers.

By the way, if your current reserves are low, it’s good to go slow and build. A few poor decisions combined with a few unfortunate events can wipe out an awful lot of work. You decide what works for you and how you protect what you’ve built. Don’t compare your biz to others (as I’ve done in the past) and try to set realistic expectations for your growth.

Anyway, hope that helps.

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Re: Managing the Risks - Posted by Troy W. (NC)

Posted by Troy W. (NC) on August 01, 2001 at 07:10:45:

Vic, I’m not of the season vet that you might be looking for, but what I would do is get as much non-option consideration money as possible. I will not put no one in those high dollar houses if I don’t get enough money. Like Ron Legrand saids, the more money you get from your T/B, the less likely they are to default. But given that this could happen you have to pre-screen that T/B to make sure it won’t happen. But don’t fear the high dollars because many are doing it. Just make sure you get as much down as possible, so then if the house is vacant a couple of months at least you will have money to cover you while you look for a new T/B.

Just my thoughts
Troy

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Re: All Great Advice…But One More Thing - Posted by JohnBoy

Posted by JohnBoy on August 01, 2001 at 22:56:58:

Ok, but if you’re starting out with little cash or credit and you have a deal that requires putting all the up front money back into the property, then instead of doing the deal by staying in the middle, flip it to someone by assigning your contract over and get in and out fast with a quick profit! Then put that cash towards your recerves when you do the next deal.

Once you get the cash built up then you can stay in the deals where you don’t get much on the front end!

A few grand today and no future liability with no money is a lot better and much safer than trying to force a deal where you have to keep your fingers crossed that your buyer performs until you collect on the back end! Let someone else buy the deal from you that can afford the added risk and get out with some fast cash in your pocket! There will be plenty more down the road after you get your cash built up!

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My take… - Posted by TRandle

Posted by TRandle on August 01, 2001 at 22:56:28:

Vic,
It’s been my experience that I only see what I’m looking for, so to speak. Let’s see, the only motivated sellers in LA are 2 payments behind? Not! I think Hal’s doing okay on a cash and cashflow basis, wouldn’t you say?

I frequently have to change my mindset and/or my marketing to find what seemed hidden before. I used to focus on Sub2’s and had a hard time finding cash-type deals, but I’m at a point where I need to generate additional cash. Guess what, I haven’t signed up a Sub2 since early May. The last few deals have been or will be resales for cash.

You definitely have to have contingency funds and you’ve already received much good advice on that issue. For me this biz ebbs and flows and had I not had access to operating funds during some of the ebbs, I would have been job-hunting a while back.

And yes, I’ll certainly feed a house and have done so. If the numbers work, it’s easier to get a buyer than find another house.

It almost seems as if you’re wanting someone to tell you that the chances are remote that you’ll end up in that situation. I thought it was fairly clear from all the other responses. YOU ABSOLUTELY WILL NEED CASH AVAILABLE to cover vacancies and repairs. Plan on it and prepare for it if you want to do this long-term.

Kaiser’s threshold is don’t hold anything unless you have 25k in the bank. You can use several different methods for contingencies and it’s a good idea to have more than one. The point is to do your best to not put yourself in a position where you can’t perform as promised.

My two cents…

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I always keep one eye on the… - Posted by JT - IN (St. Barths, FWI)

Posted by JT - IN (St. Barths, FWI) on August 01, 2001 at 15:12:18:

Ground. No matter how high you get, (in stature or success), you should always be able to see the ground, under you; (figuratively speaking).

Those that do not realize that no matter how much you have going on, there isw still a way to lose out financially. Donald Trump, almost met his financial maker, about 6 yrs ago, so if it could happen to him, well, the rest of us are way fallable.

Always have a GOOD contingency plan, for the obvious, and not so obvious of occurances. Yes, RE investing does take cash, at some point, to sustain the type of activity that this thread is all about. Either you have the cash yourself, in a reserve acct, or you know where to get it, (either from a LOC, or an Angel), or you stay with the one or two small deals at a time approach. Anything else is playing “Russian Roulette” with the finances.

Just the way that I view things…

JT - IN (from St. Barth, FWI)

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Great Theory JohnBoy, BUT… - Posted by JT - IN (St. Barths, FWI)

Posted by JT - IN (St. Barths, FWI) on August 01, 2001 at 15:02:38:

Most ppl do not have the discipline to stick to this game plan. I agree that it can be done, and in a relatively short time horizon, but most ppl can’t see over the trees to view the forest, at that point. Once you get there, the view is crystal clear, and wonder what took so long, but you can apply that to most anything. I remember, as a child, (trying) learning to ride a 2 wheeler. Thought I would never get the hang of it. Then, one day, I took off on that thing, and could never again understand what was so difficult about that task. Kind of the same concept, I think.

Just the way that I view things…

JT - IN (from St. Barth, FWI)

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Re: you need reserves… - Posted by Stacy (AZ)

Posted by Stacy (AZ) on August 01, 2001 at 13:28:49:

Tim, good advice. I especially like this:

“My current plan to manage risk is to scale back to houses below the median price range. It’s easier to cover the payments and the buyers aren’t as picky and there’s a larger group of buyers.”

Thanks.

Stacy

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Does Your Mind Ever … - Posted by Vic

Posted by Vic on August 02, 2001 at 01:05:04:

…stop working? :slight_smile:

Always glad to get your thoughts.

Vic

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Re: My take… - Posted by Vic

Posted by Vic on August 02, 2001 at 24:51:46:

Tim,

In your post you wrote:

It’s been my experience that I only see what I’m looking for, so to speak. Let’s see, the only motivated sellers in LA are 2 payments behind? Not! I think Hal’s doing okay on a cash and cashflow basis, wouldn’t you say?

Let me clarify this because I don’t want anyone to think that I’m of the mindset that this won’t work where I live. When I say that the seller’s who are less than 2 mos behind are not motivated, what I mean is that they’re not motivated to sell the way that I want to buy. If they’re current on the pmts., I can almost assure you that a L/O or a land contract will not be considered. Now there are some exceptions to that - the primary one being, if they have absolutely no equity in property, then they would be open to L/O or CFD and coupled with this, usually they’ve already got another place they want to go to. Since that is not the boat that most sellers are in, it makes doing the creative deal very difficult without putting up any cash at all.

Now, don’t get me wrong, if I’ve got a seller who is current on pmts., but maybe has 7K in equity, I probably could do either L/O or CFD simply by giving him enough money to move - perhaps a couple thousand or so - that’s also assuming he’s ready to get out real soon. If he hasn’t found another place yet, then this may not even work.

So I’m not saying that this stuff doesn’t work, what I’m saying is to get in for absolutely no money down & have them L/O or CFD their house to you is very, very difficult, unless there’s sufficient motivation. Being behind in pmts provides that motivation. Usually the sellers who would accept a creative type of arrangement usually need at least some money to move. Plus since I like to buy on CFD, I will always have some closing costs. Of course the sellers aren’t getting enough cash out of deal to pay all of closing costs. Many times I’m paying all closing costs. To close these deals costs me anywhere from 900-1200.

Let me give you an example of 2 deals I recently done.
#1. Very, very typical scenario here. People were behind 3 mos. in pmts, thus there was motivation. NOt a problem to do this deal or to get them to sell to me on CFD. BUT, to do it, I had to put up some cash - namely 3 pmts plus r.e.commission (since listing agent was the one who turned me on to deal) plus closing came to about $4800. I’ll maybe get 4K down when I sell, possibly 5K, but probably not much more since it’s only a 80K house. This kind of scenario is so typical here I could probably do 10 a month if I could find the sellers in time.

Deal #2. People were current in pmts. Hated their neighborhood though, therefore motivated. However they needed cash to buy another house. Originally wanted about 2500. I managed to get them down to 800, BUT there was still the same r.e.agent & commission & closing, so total cash upfront about 3900.
Same price range as other house, so my down pmt will be about the same.

The above 2 situations are very common. Now there are those sellers who would sell without me putting up any cash, but the great majority of those are in situations where buying their house is just not a good decision. They may have a sky high int. rate or they may have equity in the property & want it all in cash or whatever. They’re just not good deals.

Let me give you another example. I got a call from a guy who owns 2 duplexes in an area that would put a smile on HR’s face & get his heart racing. The guy bought them 15 yrs ago. One needs lots of work. The other needs some work. Has a blanket mtg. on both. He borrowed 55k on them 15 yrs ago. He would be happy to get 6 or 7K cash (probably a lot less if I made him a solid offer) & have someone take over the note. Sounds good so far right? Take over pmts, collect rent & pay him a lil cash. Problem is his int. rate is 11.25. His P&I pmt alone is 535/mo & he’s only collecting 930/mo total from all 4 units in rent. By the time you add ins., repairs, etc, it’s no longer that good of a deal.

These are the types of deals I get calls on constantly. So, do you see why I say that sellers who are current are less willing to do creative deals. They just haven’t come to the realizion yet that they’re not gonna get the cash that they think they will. A seller 2 mos. behind is starting to realize that though.

Another example - had guy call me with house - current on pmts. Has equity in it. Wanted it all up front, or at least 10K of it, so that he could buy another house. Get calls like this constantly where if I could give them their equity, they would sell to me on CFD with no problem. Problem with this, of course, is you would need an unlimited amount of cash.

Ok, I think you see my point by now, so I won’t go on any further.

As for Hal, he’s working in a totally different arena than I am. He’s buying inner city houses in need of tons of repairs, rehabbing them & either selling them or renting them out. I’m working more with the pretty houses.

It’s a good bit easier to get a seller to cooperate when the house has been sitting vacant for 5 yrs., half the roof is missing, the neighbors are using it as target practice (sorry Hal, couldn’t resist) :), & the whole back of the house is sinking and they just got notice from the city that the house is being condemned. You can get things done with this type of seller, if you can find them, a whole lot easier than you can with a seller in a nice house, & who is current on pmts.

I respect HR for taking on these types of deals as they will put many gray hairs on your head quick. He absolutely deserves all the cash he gets out of them, probably more.

I do see the importance of a contingency fund & I’m glad you responded the way you did. I have to admit though, up until now, I really haven’t been all that worried about it. But, I can tell you, that’s a changing - quick too! I definitely don’t wanna get caught with not enough cash on hand.

Anyway, that’s the beauty of this board - when you need a solution, it’s usually close by.

Thanks Tim & as always I appreciate your posts & always hope to gain something from them.

Vic

20

Re: Great Theory JohnBoy, BUT… - Posted by JohnBoy

Posted by JohnBoy on August 01, 2001 at 15:11:52:

True! That is why I try to stress this to people starting out. Those that do discipline themselves to doing it will have the best chances of survining in this business. Those that don’t WILL be putting themselves at a very high risk of ending up with a financial diaster on their hands. It will be THEM that becomes the MOTIVATED SELLER looking for a way out of their mess. Some will never listen and end up learning it the hard way! Being over leveraged is already putting you at a higher risk. Using any monies you get up front to pay for other obligations can set you back big time and make your life a living hell! Been there! I speak from experience! It’s a hard lesson to have to learn!