Posted by JohnBoy on July 27, 2001 at 11:54:25:
Ahhhh! I forgot the chips…and those drinks and fries also!
Oh well, look at the bright side…that just means I can average selling less hotdogs per hour 12 hours a day, 7 days a week! LOL
Why do you buy RealEstate? - Posted by Ron Crawford II, Philly
Posted by Ron Crawford II, Philly on July 24, 2001 at 14:02:46:
With monthly returns of $200 or $500 a month, why get involved with it!? To make $100k a year, you’d have to own 16 properties generating $500 a month (assuming that one multi-family property with 8 units, generates $500 a month profit).
What am I missing here!? Why would I take out a $200k investor loan to buy property when I could take that money and stick it in a safe CD or something??
No Pun Intended.
Regards,
Ron Crawford II
Re: Why do you buy RealEstate? - Posted by Jim FL
Posted by Jim FL on July 25, 2001 at 01:42:54:
Ron,
I agree with ONE sentiment you mentioned here;
“Why would I take out a $200k investor loan to buy property” (Although I am taking it out of context.)
I would not, UNLESS I was buying the home for WAY UNDER the value.
I learned, (Thanks to folks here) VERY early on in my carreer of REI to “Make your money going IN to the deal.”
And $200-$500/month in cash flow on a deal is not bad, as long as you structure that sale correctly.
Frankly, I’d NEVER place $200k on the line of my own funds just to make a measley $200-$500/month.
This would simply not be a good investment.
I can also tell you that I HAVE had deals where I made MUCH LESS than this per month, and they WERE and some still are GOOD investments.
As Johnboy said below, there are other profit centers to be had in Real Estate.
Certainly there are risks involved, that is why many people refer to investors as “Speculators”.
But, as we delve into REI we should be educating ourselves to help minimize those risks, and to maximize our returns.
As I said above, I’ve had deals with little to no cash flow per month. Why? did I do them?
hmmmmm…let’s see, I’ll give you an example of one of them.
I got the deed on a house where the loan balance was under market value, but the interest rate was high, making the monthly payments right at or above full market rent rates.
I may have been able to “Create” some cash flow with the terms, but I needed the cash now from UPFRONT option money to do something else.
So, I ran the ad for the house;
RENT TO OWN-AREA of town.
No BANK QUALIFYING
Nice 3bd/2bth
$xxx.xx/month
I had a tenant/buyer in that house within DAYS!
I made about $40/month in cash flow, and that was it.
But, here is the GOOD part.
This house was in good shape, needed NOTHING as far as repairs. But, with the payments as high as they were, I negotiated with the seller to have him PAY ME an amount EQUAL to 3 monthly mortgage payments when we signed the deal. This was because as I told him, I wanted to insure that my funds went into marketing the home, and securing a good tenant/buyer who could cash the deal out sooner rather than later.
If I was forced to make payments right away, I may RUSH to fill the home, and not get the best T/B’er.
So, lets see here.
I had a T/B’er in the home NOW, and NO PAYMENTS for 90 days.
I collected rent on the home for 3 months, keeping it all, and after that getting $40/month. (7 x 40 = $280)
The fun part is that the payments I was charging my T/B’er were $1500, PLUS the T/B’er gave me $7500 as option money UPFRONT!
And, the T/B’er DID exercise the option at the end of 12 months, getting me a nice backend profit of ~$26k.
Here is the profit breakdown;
$1500 x 3 = $4500.00
$40 x 7 = $280.00
Backend: $26,000.00
TOTAL: $30,780.00
But, let us not forget my expenses for this deal. I did spend SOME money.
So, subtract my costs to market to get this seller. Heck, lets throw in ALL the $$ I spent that month for marketing. About $350, ads in the paper, and some signs.
Then, lets add in the signs I placed in the yard, and at the intersections near the home to attract buyers, about $50.00 .
Now, there was also an ad in the paper to sell the home, one week, $45.00
And the recording fees; $15.00 for the deed.
Title search: $125 (I don’t remember how much it was at the time, so I’ll put in a higher than usual number to be safe.)
Total expenses so far; $585.00
But, lets go a step futher, and “assume” this was the ONLY deal I did, and I had to PAY for courses, books, and a computer to come here to learn “how?” to do the deal.
Add in the $1k for the courses and books. (I’m slow, so I bought a TON of courses)
and the computer at web connection; $1200 (probably high, since I was using a FREE ISP and an old computer, but we count it for this scenario.)
So, add in an additional $2200.00, making my total expenses to get JUST ONE DEAL at ~$2,785.00
So, let us look at the whole picture here;
$1500 x 3 = $4500.00
$40 x 7 = $280.00
Backend: $26,000.00
TOTAL: $30,780.00 (Before expenses)
Expenses: - $2,785.00
TOTAL PROFIT: $27,995.00
hmmmmmmmm…even when looking at it this way, not a BAD investment, and it sure beats the heck outa that C.D.
Imagine if I had $2785 and placed it into a CD for a mere 5% rate?
YUCK! NO THANKS!
And here is EVEN BETTER NEWS:
That course material, the books, and the computer equiptment, I’ll use those to make more $$ with other deals, increasing my return on that investment.
PLUS, the marketing I did to get this seller to call me in the first place, it resulted in OTHER SELLERS calling me as well.
Heck, even imagine IF I ONLY did this ONE DEAL…still “Good nuff” as Lonnie so often puts it.
So, WHY on earth would I want to use a “Nice safe secure CD” to place my money in again?
Rather than ask us why we invest in Real Estate, let me ask you and others something.
Why would you place money into a CD and allow the bank to make a profit using your funds?
I am not being smart here either, just trying to answer you as best as my tired mind can.
I hope this helped,
Jim FL
P.S. Didn’t we correspond a while back about REI? (I used to be “Jim IL”)
Re: Why do you buy RealEstate? - Posted by JohnBoy
Posted by JohnBoy on July 25, 2001 at 24:05:09:
BTW, just exactly what do you think that bank does with your $200k CD you have with them that they pay you 4% - 5% on? They take YOUR $200k and make real estate loans with it and charge their borrowers 7% - 10% on YOUR money the bank uses!
So while you’re safely being invested in the banks CD, the bank is taking a risk with your money making real estate loans with it!
Is this a great country or what???
Why not BE the bank instead of letting some other bank use your money to make more money for themselves when you can be making that or more for yourself???
Think about it.
The bank pays you 4% and they loan it out at 7% - 10% making 3% - 6% off YOUR money and they use real estate to secure your money with!
You can loan me that money and I’ll pay you 9% on it and I’ll secure it against the same type of real estate the bank does! Now you’re making the full 9% on your money instead of splitting that with the bank! Plus! You get to have control over the real estate your money will be secured with and not let the bank make those choses for you!
So, RON, what do you think now? NT - Posted by Kim (FL)
Posted by Kim (FL) on July 24, 2001 at 22:47:06:
nt
Re: Why do you buy RealEstate? - Posted by JohnBoy
Posted by JohnBoy on July 24, 2001 at 22:27:53:
It’s all in what you know and how you play the game.
As far as taking out $200k investor loans to buy a property that makes me $200 per month…no thanks!
What about taking out NO loans and averaging $20k - $30k profit off of each house you buy? Would that work for you if you didn’t have to take out any loans or even have to use any of your own money?
Let me give you an example on buying a house for full market value with no money out of your pocket and picking up a quick $5k up front, positive cash flow every month and a nice payday on the back end…plus where talking about dealing in NICE homes…NO junkers!
Mr. Seller has a newer home he purchased about 2 years ago. When he purchased the home he put about 5% down and was able to qualify for 95% financing. After closing cost he had hardly any equity left.
Mr. Seller ended up buying a new home a couple years later. He’s been trying to sell this home before he has to close on his new home. He can’t even afford to list the home with a realtor because he doesn’t have enough equity in the property to even cover the 6% - 7% commission he would have to pay the agent.
Now his new home is ready and he needs to close on it. He closes and figures he’ll sell the old home soon, but soon enough doesn’t seem to be coming. Now he’s starting to have some financial problems because he has to start paying two mortgage payments until someone buys the old home. He has a problem now because he can’t afford to make two mortgage payments. If something doesn’t give pretty quick he’s going to fall behind on the payments on the old home. He’s going to pay the new homes mortgage first. But he doesn’t want to be late or get behind on the payments of the old home either…he’s worried about damaging his credit if he misses any payments.
This is where I would come along and be in a position to SOLVE HIS PROBLEM! I can put a stop to his worry and stop the bleeding TODAY! All he needs to do is agree to my TERMS and I’ll even pay him what he owes on the property, which is pretty close to full market value. He knows he wasn’t going to get any money out of it after paying off his mortgage and closing costs, so all he wants and all he NEEDS, is to get out from under this mortgage!
I agree to take over his mortgage. I take it over “subject to”, which means I assume his loan without even qualifying through the lender that holds his mortgage. He will deed the property over to me. I now OWN the home. HE is still on the loan that has the lien against the property. He remains responsible to the lender for that loan until I pay it off! Usually within a few years when my tenant ends up exercising their option that I will give to them under a lease option agreement. I won’t be liable for the loan on the property. His bank can’t touch me if something where to go wrong. The loan is in HIS name, not mine! However, I will be liable to the seller to perform on our contract agreement to make his payments and pay off that loan eventually, but my liability is to him, not his bank.
He deeds the property over to me. The house is worth $150k. His loan balance is about $145k. I agree to start making the payments in 30 - 60 days from today! Now I have 30 - 60 days to market the property before my payments start. The payments are $1400 PITI
What’s the FASTEST way to sell a property? Sell on TERMS! So I run an ad in the paper.
NO BANK QUALIFYING!!! RENT TO OWN NICE! 4bd/2ba House Call xxx-xxxx
The phone starts ringing off the hook!
I find a potential buyer that has $5k to put down and says he can afford to pay $1700 per month. ($150k homes in the area would rent for $1200 - $1400 per month, so getting $1700 a month on a $1400 rental when offering an OPTION to buy will bring a premium rent and people will gladly pay it because no one else will even finance them because of one reason or another) I agree to give them an option to buy the home for $165k in one or two years. Again, you get a premium on the sale price because you’re offering TERMS!
I collect the $5k up front as “Non-Refundable Option Consideration” and “IF” they exercise the OPTION, the $5k will be deducted from the purchase price of $165k leaving them with a balance owed of $160k. If they don’t exercise the option the option money paid is non-refundable and is lost!
I get the $5k up front, plus first months rent of $1700. Since I was lucky and found this tenant the first week I get to keep 100% of the first two months rent since my payments won’t start for 60 days! So I collect $5k + $1700 first month rent up front for a total of $6700. The following month I collect the full $1700 for rent and the 10 months after that I collect $300 per month positive cash flow. At the end of the year IF they exercise their option they will pay $160k. After paying off the underlying mortgage of $145k I’ll collect another $15k at closing.
So lets see, that’s…
$5k option money up front
$1700 first months rent
$1700 second months rent
$300 x 10 months rent = $3k
$15k at closing
That’s $26,400.00 over 12 months total PROFIT!
Now what happens if the tenant/buyer doesn’t exercise the option in a year???
WONDERFUL!!!
Now I get to start all over again!!! I get to collect another option fee, raise the rent after a year for inflation and get a higher selling price for the option the next time around!
I just keep repeating the process over and over again until someone eventually exercises their option!!!
Assuming every tenant was to exercise their option in the first year…how many deals like this would you have to do each year to make $100k???
Just FOUR deals like this one and you’re making $105,600 per year!
How many hours would that work out to be to find and structure a deal like this and get a tenant/buyer in the property? Not very many!
How many hours per week would you have to put into working at your job to make $105,600.00 per year???
Re: Why do you buy RealEstate? - Posted by Carey_PA
Posted by Carey_PA on July 24, 2001 at 22:15:54:
Ron,
Hmmm, well there are many OTHER ways to make money in real estate. Perhaps a little research is in store for you first BEFORE you invest.
Why not go the the DIG Real Estate Investors group this Thursday and meet some investors and find out OTHER ways that people are making money in real estate.
Go to www.digonline.org and you’ll find all the info. you need on the meeting, btw the meeting is in Fort Washington.
See ya there…hopefully
CAREY
Whats your GAME PLAN? Report - Posted by Michael Morrongiello
Posted by Michael Morrongiello on July 24, 2001 at 22:06:12:
Ron:
Why buy Real Estate? - Good question, and maybe you should not buy any at all.
There is a wonderful informative FREE REPORT called “Whats your Game Plan?” that addresses the fundamental question that one should always ask themselves BEFORE they acquire an investment property.
E-mail me a request for the “Whats your Game Plan?” report with you contact info, to: MikeM@sunvestinc.com and we can forward out a copy to you.
To your success,
Michael Morrongiello
Re: Buy a CD at 50% discount - Posted by HOuserookie
Posted by HOuserookie on July 24, 2001 at 20:29:57:
maybe, but not face value. Now that would be a profitable venture. CDs could be viewed as “paper”.
Buying discounted paper is smart investment. But I don’t think you were refering to discounted paper, so there is no comparison.
I also have not heard of CD exchanges as a tax reduction vehicle.
Another question is, “what interest rate will you pay the bank?” At zero interest, then yes that would be a bargain.
Re: Why do you buy RealEstate? - Posted by Stew(NE)
Posted by Stew(NE) on July 24, 2001 at 18:02:02:
You have got to be kidding?
Real Estate has 4 ways to make money
CashFlow (Payment over the Monthly Loan Amount)
Appreciation (Rise in Price Demand)
Tax Advantage (Depreciation Expense)
Equity Buildup (Renters paying off the Mortgage Loan)
I read this on this site, so apologies to whoever
This is why rookies can fail at one aspect and still get “lucky” on the other 3 to bail them out.
Re: Why do you buy RealEstate? - Posted by Randall Porter
Posted by Randall Porter on July 24, 2001 at 16:44:22:
One of the biggest things you are missing is that real estate can be purchased a deep discount. We buy houses every week with discounts varying from 30% to 70% below market. Our profit is locked in when these houses are purchased. You certainly can’t walk into the bank and buy a $100k CD for $50K, but you can buy a $100K house that needs some work for $50K and still have a $20K to $30K profit potential after repairs are made.
Have you ever heard of… - Posted by JT - IN (St. Barths, FWI)
Posted by JT - IN (St. Barths, FWI) on July 24, 2001 at 15:06:16:
Anyone “Saving their way to Wealth”?? Didn’t think so.
You see, all the wealthy people “Invest” their money! Now if you had said, Why buy RE instead of Hog Futures, or Equities? Well that might be a discussion, but not comparing an “Investment” to a “Savings vehicle”, such as a CD. There is just no comparison.
You talk of an 8 family that nets $ 500 per month. Well, that is not a very good invsestment either, if you have $ 200K mtg and are only netting $ 6K per yr. So. it may be apparent to most here, that you are not aware of what is possible, with RE investing, and hiow to loacte a good RE investment, if you could. It would sound nothing like what you have described.
You will never have enough capital (cash), to put into a taxable investment, such as a CD, to live conmfortably, unless your name is Rockefeller, or Getty, or any of the other wealthy families of the US, but then again, they don’t put their money into CD’s cause they know better. They are Investors!
One more thing, there are more millionaires created by RE investing, than any other commodity, in the US, so maybe that is why we all find this pursuit of RE investing so enticing. You see, ther is a huge difference between “Income” and “Net Worth”. I live n my income, but I invest to build my net worth, which is wealth!
Just the way that I view things…
JT - IN (from St. Barth, FWI)
Re: Why do you buy RealEstate? - Posted by Steve-Atl
Posted by Steve-Atl on July 24, 2001 at 15:00:43:
You’re right! Put your money in a CD if you want to be really “safe”. After all, a guaranteed 5% return that is insured by the federal government removes all the risk…right? The only thing that is guaranteed in these CD’s is that you will just barely keep up with inflation…if you’re lucky.
Instead, the greatest risk is failing to educate yourself about how to make money work for you. Many people on this board have chosen real estate as the vehicle to reduce this risk.
I suggest you start by reading Rich Dad, Poor Dad and open your mind to the possibilites.
MANY other aspects to the industry … - Posted by SusanL.–FL
Posted by SusanL.–FL on July 24, 2001 at 14:48:31:
…besides just the moolah$
Besides being able to make decent $money$, I love the challenge and creativity it takes to be able to pull a deal together. This is the type of industry that separates the men from the boys?definitely NOT for the weak-hearted!
Re: Why do you buy RealEstate? - Posted by J. CA
Posted by J. CA on July 24, 2001 at 14:39:45:
Taking out an investor loan at 8, 9, 10% or more interest and sticking it into a CD at 4, 5 or 6% isn’t much of a plan, considering you would be LOSING money!
As Andy pointed out, we don’t want to go around taking out loans to buy $500 cashflows. We want to get those cashflows for little or no money out of our pockets. And when you’re paying nothing for them, each cashflow doesn’t have to be $500, it could be $50. Would $50/month for free be worth it?
What makes you think you need an 8 unit to get a $500 cashflow? Read some of the success stories. You’ll find lots of lease/option deals where people are making $200-$400/month from single family homes! Let’s see: 8 SFH’s at $200 each, with no money out of my pocket…
Re: Why do you buy RealEstate? - Posted by Larry(Mo)
Posted by Larry(Mo) on July 24, 2001 at 14:34:02:
Ron. The most obvious reason i can see is that my
CDs pay 6.5% and it cost me between 8-9.5% to borrow
money so it would cost me approx 4,000 a year to watch
my CDs sit based on your 200,000 figure.
I think there are bigger issues here.
Using borrowed money gives you control over properties
and all of the cashflow.
Properly managed and maintained properties will show a growth factor that will outweigh the benefits of
a CD investment.
And if you are a good negotiator you can buy instant equity properties that will increase your net worth instantly at a larger growth rate.
A CD brings me a letter from my bank saying i have a little more money.
An accepted offer makes my adrenalin go into Hyper-Drive.
Where i live i will have to own 30-50 sfh to make 60,000 a year.
Will i have to work hard? yes
Can i get there? got 13 now in less than 2 years
Is it worth it? YES.
Read a lot buy a good course and set your goals high.
Larry
Re: Why do you buy RealEstate? - Posted by Kim (FL)
Posted by Kim (FL) on July 24, 2001 at 14:27:06:
You’re kidding right??? Really, you must be??? Right??? The rental unit that clears $100 this year will probably clear $170 in 2 years and $220 in 5 years and then when the mortgage is paid in 15 years (or whenever depending on how financial sound are) you’re clearing $700 a year and on and on. I don’t think that there’s any thing more secure than a long term real estate investment. That’s not even taking into consideration the appreciation aspect of the property in case you want to sell it when you’re 60 so you can retire early.
Who wants an easy 3-7% return the rest of their life? NOT ME! Plus - you just said it yourself - you don’t have 200k to put in a CD. So, where’s the comparison?
Re: Why do you buy RealEstate? - Posted by Tim (Atlanta)
Posted by Tim (Atlanta) on July 24, 2001 at 14:26:07:
Ron,
You need to read some more. If you still want to stick your money in a “safe” CD, then you haven’t gotten the point with REI at all.
Let’s say that you find a property that will cash flow at $200 per month. Who said that you had to put all of your money in it? Who said that you had to pay all cash for the property? Where else could I put a few thousand (maybe none) in a property, own it, realize cash flow now and a big payday when I sell it? Can your “safe CD” do that? I don’t think so. Also, can you buy a $100k CD with anything less than $100k in cash? NOPE. I can buy some $100k homes with NOTHING out of my pocket. And if I have to get bank financing, I can buy for 10% down. I don’t see any other investment vehicle that can offer you that.
One other thing : What other investment allows you to buy an asset and let others pay for it?. If I put some cash into a property, I can usually get it back within a few years. Then what do I have invested in the property? NOTHING. The tenants are making the mortgage payment, repairs and other expenses. I am just sitting on this property enjoying the appreciation. When I sell it, I get more cash to go and do other deals. I don’t think anyone will pay for your CD but you, will they?
Seriously, keep reading. The world is just about to turn around for you.
Re: Why do you buy RealEstate? - Posted by Andy
Posted by Andy on July 24, 2001 at 14:17:16:
Well, for starters, if you had to take out an ‘investor’ loan to buy properties you would not have that money to put into a safe CD. Most people on this board buy their properties with little or none of their own money invested. So, you are making this cash-flow with no or little of your own money (try that at the bank). Second, you have many residual benefits of property ownership, especially when you consider the small amount invested: property appreciation, mortgage interest deduction, depriciation.
That $500 a month cash flow now may be $800 per month cash flow in a few years, on 16 properties you would no longer be making $100k a year, but $150k a year. I like them apples, as where else is your income going to keep up with inflation like that? Managing (or paying someone to manage) your properties is a whole lot sweeter than sitting at a desk passing the time until: the weekend, your vacation or retirement. After all, a property won’t care if you come in at 11 a.m. and go home at 11:30 a.m.
Re: Why do you buy RealEstate? - Posted by Jeff Tunnell
Posted by Jeff Tunnell on July 25, 2001 at 01:21:00:
This post sounds so believable on the first read, but here are the most obvious problems with the scenario.
First of all, the two mortgage person does not exist unless they have a lot of money and income. Mortgage companies are promiscuious now days, but they do not give two loans to people that cannot afford it. So, you need to look for lightning to strike, and find a fairly well to do couple that could afford two payments, but then fell on hard times. Good luck.
Now, you need to convince that person to give you a deed to his property just for taking over the payments. No way is that going to happen. People that live in $150,000 homes are not dumb. At the very least they would be smart enough to rent the property for the supposed market rate of $1,200-1,400 while they waited for it to sell.
Next, name a real place that has rents of $1,200-$1,400 per month for $150,000 homes. SFH never rent for anywhere near 1% of the value per month. This type of income imbalance is quickly equalized by investors. More likely, a $150K home will get a maximum of $850-950 in rents. That won’t cover the PITI described here.
IF, and this is a big IF, one could find a buyer that had $5,000 cash, they would probably have the ability to get into a real mortgage at the current rates of around 7%. These people are not dumb. They know that interest rates for mortgages are extremely low. Why would they pay additional money and highway robbery interest rates?
This is the same problem with all of the no money down scenarios touted on television. They rely on impossible rent to value ratios that simply do not exist.
Maybe once in your career the stars will align correctly, and lightning will strike all at the same time. You may get some parts of this deal done, but not all. If you dig around long enough, and are smart about what you do, you may be able to uncover a distressed SFH property that can almost cash flow on rents, but they are few and far between. Even if you did get it all to work out, it could never happen FOUR times per year.
I know I am going to get flamed for my post, but it just isn’t as easy as this post makes it sound.