Investing Paths
im new. green. but as far as i can tell, there are two basic paths to creating wealth in real estate.
one way is to buy way below fmv, fix it, rent/sell it and have positive cash flow monthly.
the other is to buy at or near fmv, rent it and hold on for long term appreciation.
if you go the first route, then you are looking for properties that need work (cash) and may not attract the best tenants. the neighborhood might be less than desireable, therefore long term appreciation will not be significant. there will be a price for the monthly cash flow and the price will be headaches, unless you farm it to a property management company. then youve just undercut yourself.
the second path is to profile the communities in the area and dig into public records to try to find areas with high appreciation. 10-15% per year appreciation. then go in and buy at or below fmv. rent it, wait two-three years, and sell it. pull your cash out and roll it into another one (1031). repeat till you are renting out several houses and the equity transfers enable a positive cash flow. but you have to wait for it.
i have read of many people doing the first path and doing quite well, but is anyone doing the second? is it nuts to try to buy only quality, even if you have to pay a little bit more? does anyone do this or am i crazy?
I guess if you have to take the many different scenarios to make money in REI for SFU, you have accomplished the goal. I think perhaps the second path is more risky. Any time you tried to predict the future economic patterns of anything and tie your returns to it alone, you are sking for trouble. However, I have had limited success buying at pre-pre-construction prices and reselling during builder's close-outs. It seems to me to be less risky.
If you substitute the word BUY with the word CONTROL, you will find a whole new menu of opportunities opening up for you.
Over time many techniques have been developed based on the word CONTROL. The TCI forums are split up in the several chapters discussing several of these techniques in depth.
All of these techniques can be very profitable, if you follow the "rules" that determine the playing field.
Search the archives, post your questions, get the deals and you'll do very well.
[addsig]
What makes you think you can't buy great houses below FMV? People do it all of the time.
I'm working on a deal right now for 103K. Loan is in default, owners have filed for bankruptcy protection. The house should appraise at or near 145K
The current owners don't expect to walk away with any cash. They just want the problem gone, and I'm happy to help them with this.
The home is nearly in perfect condition. Only 2 years old, and vacant.
Which path am I on again?
Don't limit your thinking. No need to be in a hurry to have all of the answers. As your education continues, you'll formulate all sorts of ways to make things work to your advantage.
Good luck,
Jeff
Hawthorn - Excellent point!
You have to remember you are only to deal with motivated www.sellers.Remember that you are the problem solver.You solve the problem by taking a unwanted house off their www.hands.This creates win-win situations for both parties.
And why can't you do both???
Buy undervalued properties and rent them out so that they cash flow really well???
That's what I do.
I agree with Jeff and Hibby on this one.
Why dont you do a combination of the
following:
-Retail
-Wholesale
-Rent
You buy everything that comes your way.
You buy and retail the ones you wont have a problem selling , buy and wholesale the warzone properties and junkers and buy and rent the nice houses in good areas. - This is what I
do. You need to take care of todays cash
flow need today also!
You should educate yourself so that you
understand the whole business. You can then be a real-estate transaction
engineer.
Good Luck
Jeffrey Adam
[addsig]
wow. thanks for the input. i would have to agree with jeff and hibby.
assuming i have a day job to pay the bills, have a mortgage on my house, and have stellar credit, here are the followup questions.
1. in order to buy a klunker and fix it up, i have to have cash. that means a mortgage to buy the house and hard money to fix it. in order to fix it and sell/rent it, i would have to buy in depressed areas or find the gem in a good area. once i have fixed the house, it now appraises for fmv, which is much higher than what i originally bought it for. the question is, who is going to buy it? if i have created one of the nicest houses in a less than desireable neighborhood, will anyone with good credit want to buy it? and of the people who do want to buy it, they more than likely will have bad credit. if i do my own financing, then i have the pressure of making sure my mortgage collection is timely. plus i am now a lender. i am sure that there are legal ramifications of selling my own properties this way that i dont know about. therefore, i have to hire a lwayer. more money. so, to make the money, it would be easier to rent it out or sell it for less than fmv.
2. in order to buy houses in good neighborhoods below fmv, jeff12002 suggests a house in default. this implies a lis pendens condition, or something on the road to foreclosure. in order to help these people out, they want to get rid of their debt payment fast. usually, fast means cash. so now i approach a home in a 150k neighborhood with 10% appreciation. the owner is in default. the nieghborhood is newer, so they have little equity in the house. the default amount is 135k. in order to help them out, i need to come up with 135k. this can mean hard money (3 points, >9%), a 100% investment mortgage (hard to find and qualify for), 20% of 135k plus an investment mortgage (easier but still slow), or my uncle bobs massive cash holdings. i am bobs favorite nephew.
3. hibby76, do you use any anlysis tools such as advanced spreadsheets or applications from the net? i realize you have been doing it a while, so i would imagine that your subconcious anlysis contribute a great deal. you may even be able to "feel" whether or not a deal is viable. but do you prefer any hard statistics or numbers when evaluating properties?
4. jeffreyadam, i would LOVE to buy everything that came my way. the only concern would be the mortgage schedule, the rental schedule and my familys feeding schedule. if i buy 6 houses, one every two months, then i have the potential of vacancy every two months. if i buy at or below fmv in a good neighborhood, without a large downpayment, then the rents will barely cover the mortgage payment. all it would take is four or five months, and i would be bankrupt. whats your secret? and what tools/criteria do you favor?
i am in no way disparaging any of the remarks in this post. in fact, i am rather pleased with the responses. but i temper my dreams with a good dose of reality. i have kids to feed, plus a wonderful wife. i want to invest in real estate for my children. i see each house as a bank account that someone is willing to pay at least 4% on, plus pad it with several thousand dollars.
i know that great success can be had in real estate, but i also know that when someone runs by my properties, i want to make sure they realize that quality and care was invested along with the money.
To answer your question, I buy everything
that comes my way and create a huge cash flow by "wholesaling". When I wholesale a
property, I usually have my cash within
one week. I usually either assign my escrow and collect my fee or close it with a hard money loan and flip it to another investor letting them assume the financing.
For example, next mos you find 4 deals.
Wholesale 3 of them for 4k-10k a piece leaving some room in it for the person you
are wholesaling it to. The fourth house
in the best neighborhood you fix up and
retail. I would recommend you wholesale
for 6 months and build up some capital.
Put an ad in your local paper: 3 bedroom
2 bath fixer upper needs work. Your phone
will blow up! Take down all the names of the people who call. You have now built
your buyer list.
In terms of being the best house on the block, believe me, there is a buyer for
everything! If you market it right, it
will sell. Network with other realtors
and see what areas are hot.
Jeffrey Adam
[addsig]
jeffreyadams, what you are describing sounds so tasty. mind if i ask more annoying questions?
1. when you look for a property, do you have a set of criteria that the investment must meet before you touch it? such as 50% below fmv, or a certain profit you know you can get out of it?
2. when you begin to market these properties, you only advertise in the paper? nothing else?
3. how do you come by most of your properties? drive-by, reo/foreclosure, mls, etc?
4. are you a realtor? and if so, did you find that this helped you in your investing career? i was considering it just to get access to the full mls and to take a cut in the buying and selling process.
thanks for being so candid and forthcoming. i was afraid that most people would be afraid to answer the hard questions, but i se you are not. thanks again, eddy
Quote:
On 2004-01-21 15:15, ragdelaed wrote:
jeffreyadams, what you are describing sounds so tasty. mind if i ask more annoying questions?
1. when you look for a property, do you have a set of criteria that the investment must meet before you touch it? such as 50% below fmv, or a certain profit you know you can get out of it?
2. when you begin to market these properties, you only advertise in the paper? nothing else?
3. how do you come by most of your properties? drive-by, reo/foreclosure, mls, etc?
4. are you a realtor? and if so, did you find that this helped you in your investing career? i was considering it just to get access to the full mls and to take a cut in the buying and selling process.
thanks for being so candid and forthcoming. i was afraid that most people would be afraid to answer the hard questions, but i se you are not. thanks again, eddy
To answer your questions, here you go:
#1- Yes I do have a criteria. I typically on
an average buy stuff at 65% of market value with average fix-up. If I am going to wholesale it, I have a buyers list I have developed over the years. I typically wholesale to the same one or two guys.
I do have some wholesale buyers who are looking for rental properties in a certain area I can sell to them even higher at lets say 80% of market value.
My suggestion to you was to put an ad to
develop your wholesale list. You should also join an REI group and network.
I usually wholesale properties for 4k - 10k over what I pay for them, leaving my wholesale buyer 10k profit selling with a realtor. If they sell it themselves, they make more.
#2- If I am going to wholesale, I market
them immediately. I simply call up
1-2 of my wholesale buyers and give
them the address. If I am going to
retail, then I put an ad in the paper,
offerring no money down. (There are
a couple different programs in my
area where the buyers can purchase
with no money down.) I also use an
aggressive sales system where I
pay 6% commission to the selling
agent with a full-price offer. My
broker friend puts them in the MLS
for me for $300.00 and my name as
the contact. There are services out
there that will do this for you. I also
send fliers out to real-estate offices.
#3. - I come by them a number of ways.
MLS, Pre-foreclosure, trustee sales,
Agent referrals, farming, other
investors, tax sales, etc...
#4.-No I am not a realtor. I do have MLS
access thru my broker friend. If I had
to start over, I would get my license,
it is a free education and not only
that you have MLS access and can
network with other agents. You also
get free money when your family and
friends want to sell or buy a house.
This would be good for you starting
out. I have probably lost $300k +
over the years in commissions I
would have made if I were a
realtor.
Best Riches
Jeffrey Adam
[addsig]
[quote]
On 2004-01-21 12:10, ragdelaed wrote:
2. in order to buy houses in good neighborhoods below fmv, jeff12002 suggests a house in default. this implies a lis pendens condition, or something on the road to foreclosure. in order to help these people out, they want to get rid of their debt payment fast. usually, fast means cash. so now i approach a home in a 150k neighborhood with 10% appreciation. the owner is in default. the nieghborhood is newer, so they have little equity in the house. the default amount is 135k. in order to help them out, i need to come up with 135k. this can mean hard money (3 points, >9%), a 100% investment mortgage (hard to find and qualify for), 20% of 135k plus an investment mortgage (easier but still slow), or my uncle bobs massive cash holdings. i am bobs favorite nephew.
i am in no way disparaging any of the remarks in this post. in fact, i am rather pleased with the responses. but i temper my dreams with a good dose of reality. i have kids to feed, plus a wonderful wife. i want to invest in real estate for my children. i see each house as a bank account that someone is willing to pay at least 4% on, plus pad it with several thousand dollars.
i know that great success can be had in real estate, but i also know that when someone runs by my properties, i want to make sure they realize that quality and care was invested along with the money.
ragdelaed,
Here's a dose of reality for you.
6 months ago, I would have been unprepared to debate any of the points you've put forth on this string. Today, I'm just too busy doing what you're trying to say you're not in a position to do. Neither was I, 6 months ago. I'm not succesful yet, but I have had some successes.
My goal here is neither to scold you because you think the way you do, or to be your cheerleader and try to change your mind.
Your current expectations are limited more by your knowledge and experience than you now realize.
You seem to be intelligent , and cautious. Neither of those traits are bad. I would encourage you to continue to educate yourself. If your reality today isn't doing this or that, break it down into smaller projects. Find a few properties, identify the potential great deals, by doing some research, and then call one or more of the "WE BUY HOUSES" ads in your largest local newspaper, and inform the person that answers the phone that you have leads on some great properties that you would be willing to turn over in return for a fee if they end up buying any of them. You might even offer to lower this fee if they would be willing to take you along on the negotiations, and walk you through the process of putting the deals together etc You'll have earned some money to compensate you for some of your time, and increased your knowledge in the process. Set some of this aside as your investing nest-egg. After a while, you'll be ready to keep some of your prospect deals for yourself either as wholesale deals and eventually moving on to rehabbing them yourself, or venturing off into the preforeclosure market, or Subject 2, or whatever. The next thing you know. You are pulling off deals like the ones that you can't envision yourself doing right now all the time, and you'll realize just how much you didn't know today.
It's just a mater of education and application that you're lacking. That part's up to you!
Good luck ,
Jeff [ Edited by jeff12002 on Date 01/21/2004 ]