Analysis Paralysis
I'm a newbie and am having a hard time deciding on an investment approach to focus on out of the gate (e.g., wholesaling, foreclosures, lease-options, etc.) that best fits my goal: to build enough passive income that I don't have to keep my day job and have more free time to do the things I really care about. The only condition is that I really don't want to deal with renters (though I will if that best fits the goal).
Beyond that, I'm not sure whether it's better to start out with an LLC or to just do it myself until I have a couple properties under my belt and then form an LLC.
Any advice?
Quote:I'm a newbie and am having a hard time deciding on an investment approach to focus on out of the gate (e.g., wholesaling, foreclosures, lease-options, etc.) that best fits my goal: to build enough passive income that I don't have to keep my day job and have more free time to do the things I really care about. The only condition is that I really don't want to deal with renters (though I will if that best fits the goal).
Mashuganah,
You need to define your goals in better terms, and understand the terms you use. You say that you want to build enough passive income to quit your day job, but the strategies you list (wholesaling, foreclosures, lease-options, etc.) are active income activities. To get passive income you need to hold rental property, but this seems to go against your temperment.
Quote:The only condition is that I really don't want to deal with renters You can have rental property and not deal with renters. Just hire a professional property manager to deal with the renters on your behalf. Holding rental property will help build your net worth over a long investment timeline, but the cash flow from rental property is not the quick way to get enough passive income to quit your job. Rental property operation has often been called the Slow Road To Wealth.
If you quit your day job in the near future to go into real estate investing full time, you will have to pursue some sort of active income real estate activity. To keep putting food on the table, you will need to close another deal. When you close each deal, set aside some of your profits that are excess to your lifestyle needs to acquire rental property. Hopefully, when you are ready to quit chasing the next deal, you will have a large enough rental portfolio to meet your lifestyle needs.
It can be done, just not overnight for most of us. I have been landlording for 23 years now. It took me 16 years to get to the point to which you aspire.
If you already know you don't want to deal with renters, don't. Talk with investors in your area and see what they are doing, then read more on those areas that interest you. If you like fixing up a place or managing handymen/contractors, then go to your strengths.
I would reccomend Tony Robbins "Awaken the giant" as it talks about making decisions.
GL
[addsig]
I think first off you need to know your own situation. Do you have cash ? If not, that rules out subject to, lease-options. Whoesailing is you best in that case. Passive income = renters/tenants, or maybe you carried a note on a property. Other than that if you want passive income tenants will be a part of you life. There is always property management, although this may or may not be a good option right now if you are short on funds. I dont think its important to incorporate unless you have a high net worth or multiple properties.
Thanks Awack! That was most helpful - laying out some of what works for which situations. One question though, I thought one needed cash for wholesaling. That is, if you're buying pre-construction or a fix-up to turn over, you still have to have down payment, pay mortgage for as long as it takes to turn over, etc.
How would one do wholesaling without cash?
Quote:
On 2004-11-24 03:19, awackwhiteboy wrote:
I think first off you need to know your own situation. Do you have cash ? If not, that rules out subject to, lease-options. Whoesailing is you best in that case. Passive income = renters/tenants, or maybe you carried a note on a property. Other than that if you want passive income tenants will be a part of you life. There is always property management, although this may or may not be a good option right now if you are short on funds. I dont think its important to incorporate unless you have a high net worth or multiple properties.
You'll want to assigh you contract to an investor or someone to go out and get traditional financing to buy the house from you for your assighment fee.
You sound like me when I first got started. I wanted everything layed out perfectly; my business structure, my stragety, my investment plan, etc.
Don't worry about it. Pick something and do it! Once you start doing deals you will find what works for you and what does not. You will find what you like and what you don't like.
Then you have something to work with to create your plan and your business structure.
TAKE ACTION!!
[addsig]
what kind of dollar figure do you need to start, without losing your own housing, in any of these fields? I got about $200 saved, i'm guessing a couple of thousand would be needed
OK, I'm lost. Can you explain, or point me to an explanation, of what assigning a contract means and how it works?
Quote:
On 2004-11-27 20:17, awackwhiteboy wrote:
You'll want to assigh you contract to an investor or someone to go out and get traditional financing to buy the house from you for your assighment fee.
Mash, this is where yuo get a property under contract, then try to sell that contract for a fee. Example: Get a house under contract for 40k, then market that house and see if you can make a few thousand or more by selling that contract to someone else. The drawback is they will know how much you are making on the deal, the bonus is you can do these all day long without much risk as long as you have the right contingencies in your original contract.
[addsig]
Mash,
you'll want a 14 day or however long due diligence period to do your homework.
I posted this on another post but I'll just copy it here as it applies and I didnt feel like retyping it
I am still new to REI also, but I do understand how to make $$ using assignment of contract. You need to get the property/ies tied up in a contract you submit and it will be signed by the seller agreeing the terms. The contract MUST SAY on it (your name i.e. Buyer) and then "And/or Assigns" this way you contract is assignable to whomever you wish. Make sure you leave yourself a life boat clause, something that allows you to get out of the deal should something go bad. Like subject to partners approval, this one should always be in "contract subject to buyer obtaining suitable financing, buyer shall act diligently and in good faith to obtain financing". You'll need to put up an earnest money check for whatever amount. And in the contract state, "Earnest money check due and payable at close of escrow". write this on the check also. Take the check personally to the escrow co. and tell them face to face this check is not to be cashed until the close of escrow, just in case the appropriate funds may or may not be there. The only other form is just an assignment form stating you are signing your contract over to whomever for X amount. If I made any mistakes in this someone more experienced feel free to correct me.
Oh yeah one more clause
Thanks Ray and Awack for the assignment overview. It sounds like a good tool for a slow to moderate market. It'd never work in the DC metro area where people are bidding $20K over asking price just to have a shot at winning a bidding war. A house can have 10 contracts on it within 24 hours here. No one would bother to look at an offer with an assignment contingency - they don't have to.
I think that is exactly the market you want. YOu need to find the owners that are not listed with the realtors, get it under contract for a great price then let them bid-war with you.
Good point, Ray, people will be beating down your door for that assignment. How much wiggle room do you need in this type of deal to make it worth it?
Mash, if not NoVa, where would you work? I'm assuming that type of work should be a little convenient for showing and meeting people.
Lastly, when you do this, who shows the house to prospects; How do you get around going back into the house to show multiple prospects once the seller has a contract?
Thanks all - very helpful info!
Ray - how does one find owners who are not listed with realtors?
Ceinvests - I don't understand your statement, "How do you get around going back into the house to show multiple prospects once the seller has a contract?" Specifically, why would I go back after the seller has a contract and, if I did, why would I want to avoid that? Yes, I'm still learning.
NewKid - I realized I had my terms wrong after the initial responses. I am open to active investment income while building passive income. I also understand it's a long term goal - and well worth it!
"Ray - how does one find owners who are not listed with realtors?"
Drive for dollars, look for fsbo signs, send postcards, call divorcees, call deceased, knock on doors. Relying on stuff solely listed by a realtor is a bunch of missed opportunities
[addsig]
Mashuganah,
That was a question for those who recommend that your area is ripe for contract assignment.
It reminded me that I have wondered how
those who work on wholesaling (assigning their contracts) manage to:
show their prospects a property that they do not own.
Because an assignment is someone paying you for your contract so the property would need to be seen by whomever you want to buy your contract, right?
I'm wondering how you get access to that property over and over to show so that you find your buyer. :-?
Yes Ive heard of this also in a strong sellers market. You go to the seller and tell them you want to buy their home, but that you dont want to get in a bidding war with others so you just tell them you will pay 500, over whatever other offers come in. But, you have three rules, the offer must be a written offer, it must be acompanyied by a pre approval letter, and you want to see the other offers. Whats the at end of every offer ? the prospective buyers name and address. You go to them and offer to sell them your contract that will bid higher than anyone else, and offer to assign them your contract. I havent done this, but I herad it from a millionaire investor. Good luck.