I have the money, here are the options, what would you do?

Question

Hello BP Community,

As a newbie I have found that making that big first decision or taking that "leap of faith" is the most difficult part.  I have no doubts that I want to become a REI. I am not scared (maybe just a little). I have been educating myself "obsessively", I have attended REI meetings in my area, I have  business cards of the real players in my area, I have a team that includes a Real Estate Agent, a manager, and an IT person. I have attended gurus presentations and had a meeting with a full time investor. They both tried to sell me a course, I did not buy - the information was very good though. I have been listening to BP podcasts and webinars. I have a supplier for the materials, a person from one of the big companies in that field. I think I found a contractor that comes highly recommended. I yet have to meet with him though. I think that I found my niche. However, I can't make out my  mind on what should be my first  "move".

So here it goes for your input:

I think I want to do fix-flip. I am considering buying from wholesalers, tax deed sales, and probates. However, the wholesalers that I have talked to have very limited inventory 1-7 properties max.

I do have a full time job and I am not sure I can do wholesaling yet. The marketing and knocking on  people's doors seem to me very time consuming, I might be wrong. Please pitch in on that.

My plan is to sell my house. I should have a reasonable amount of money once that is done. Houses are selling good in my area, I expect  that to happen in the next couple of months. And, I will try my best to sell it myself to save some money. I will use a Real Estate Agent on my future investments though.

These are the scenarios that I have been contemplating so far:

1. Buy a duplex/triplex and do house hacking. Kind of concern about the neighborhoods though. I am a woman with a strong character and personality.  However, my height is 5'1" and my weight is 110 pounds. Not very physically intimidating. And not sure if that even matters. Your 2 cents.

2. Buy a HUD property to fix and live for the amount of time they required and then sell it. I might still have enough money to buy an apartment cash to fix and flip.  Maybe a hard money lender if I am short.

3. Buy the  HUD and rent out the current one  (not sell). I think I can pull having a second HUD exception because I can prove that I have to move due to a job requirement.

4. Sell the house and buy 2 apartments to fix and flip. I would buy one that I can live in with some of the money and the other one with hard money that would be empty.

5. Not sell the house, get a HELOC and start investing with that money instead of putting all my money out there at once. My concern is that the HELOC wont be enough, I would need hard money for this option.  I  would have to rent out the house though. I must move closer to my job no matter what.

6. A colleague recommended LOCs too, haven't done my research yet..

7. Joint Ventures are welcome, not sure if good starting out.

Biggest concern is should I get the money and "dive in" or should I keep some of the money and start slow? Should I use hard money and not use my own money (other than for the required fees involved)? And, keep my own money as reserve? I wont have a second chance on this. I must use that money wisely. I don't mind personal sacrifices of quality of life, personal space, or amenities.

I know this a lot but you have a very good idea where I am coming from. I appreciate your honesty, I am a big girl (not literally). I can take it if I am ALL wrong :)

Hope this gets the ball rolling. I am sure seasoned REIs can provide sound advice and newbies will benefit from it as well.

Putting on spotlight, some of the big players here...sorry guys (not really!)

@David Dey

@Brandon Turner

Account Closed

Can't wait!

Bill Gulley · Answer

Well, seems you're lost. Just anxious, eager like all the other newbies wanting to make money. All the real estate forums, podcasts, You-Tube seminar stuff you have basically wasted your time with hasn't given you any direction, no plan, or any knowledge of business, as most others, you're still rather lost.

Now, you're luckier than many here, you have a job. That takes away a lot of stress and the sense of urgency many act upon trying to start. First, don't put your job at risk getting greedy. Listening to the hype of real estate systems and programs to follow only adds fuel to the flame. All the advice as to go get some money and jump in, while that's great for cheerleaders, it isn't good advice especially when someone coming in says they can't afford to lose.

If you can't afford to lose in any business transaction, it might be best you not get into that transaction. We profit in real estate from accepting risk! What we do is identify an opportunity, assess the risk, assess the profit motive and benefits, reduce and manage the risk to achieve our goal, then we act on each plan or transaction. This cycle continues over the life of your involvement with any investment or operation.

Unlike going to your stock broker and setting up a retirement plan with your discretionary  income, real estate requires more entrepreneurship. That means you must utilize your time, capital and knowledge in the most efficient way to accomplish your goal. The directions for doing that do not come in any guru seminar, book, story or song sang by anyone on the internet. Newbies that follow step by step dance moves don't understand, nor do many desire to understand the music, they just want to move and shake something and get paid. You'll never paint a master piece with a paint by numbers set!

Now, you say you must get it right the first time, well, chances are you won't dumping your money into something........but if getting it right means not losing all your money, you can get lucky. The only way to avoid losing your money is 1. not invest it, or 2. only invest it from dealing in a good entrepreneurial manner, eliminating and managing risks to an acceptable level. There is not one post on BP that even mentions the steps of risk as I did above, not one guru program or any other alter education program. So, I must assume it's your entrepreneurial skills that's lacking.

Therefore, follow number 1., don't invest your money in real estate!!!

Invest your time, minimum capital, and knowledge to capitalize on opportunities that you find. There are safe ways of obtaining control of properties or interests in title with no or very little money, but to do them correctly requires greater skills and education.

You made a suggestion to buy "2 apartments" well, after all the study you have done about how to do real estate deals, it seems to me you don't know the basic classifications of real estate, single family dwelling and multi-family dwellings. IMO, you're not close to throwing your money into some deal yet.

To suggest you sell your home for investment capital at this stage is nothing but frightening!

The reason you are reluctant to jump in is hardwired into you, self preservation, common sense, you actually recognize you're not ready to jump in with a good grasp of knowledge to risk your money. I understand you'd rather think or at least not admit that your time spent on your learning wasn't a total waste, it probably isn't, but it was not focused in preparing yourself as you should have.  Yes, that's in the basics of real estate and business that develops entrepreneurial skills. Fact is, if you don't have basic business and real estate knowledge the risk of failure is multiplied and your efforts become anchored in luck more than anything else.

Now, back to the chatter, go get some money, get a contract and jump in, you just can't lose!  LOL  :)

Brian Burke · Answer

@Yadira Gutierrez one certainly cannot fault you for lack of preparation. You've done your homework, probably way beyond what you needed to by this point. Imagine if you were building a house. You have bought all of the materials and they are stacked on the lot, all the way down to the door knobs. Trouble is, now you have all of this stuff in your way as you are trying to build...it's OK to buy the materials as you go.

That's just another way of saying that it's time to get started.  If you keep preparing you'll enter into paralysis of analysis. Go out and make it happen.  Just don't quit your day job just yet--once your business gains some traction and is earning you money, and the day job is costing you more than its earning you, that's the time to take a serious look at your next career move.

As to all of the investment options, you have to pick the one that best fits your objectives and works in your market. It has to do both or you are just pumping gas into a parked car.  Only you can decide what works for your goals and only local market knowledge can enlighten you as to the strategy's viability.

If I was in your shoes (which I'm not, so ignore the foregoing) I'd take out a HELOC and do some flips. Minimal disturbance to your personal life, no long term commitment, fairly quick "success/failure" feedback, and you get your feet wet and see if you even like this business.  Along that journey your ultimate strategy can come into focus.  You could start the HELOC origination tomorrow and be ready to close deals next month.

Bill Gulley · Answer

Well, you are in a class by yourself, I'm sure you're going to be just fine!

Professionals do not begin in the realm as "investors" pulling deals as a system or under a program, they begin with a real education, formally instructed by qualified teachers, you can find these types at licensed real estate schools in every state, you also find specific classes at colleges and universities. There are courses offered for Realtors for the to progress through a professional track and they specialize in many different areas. Entrepreneurial skills can come from the basics of business courses, economics, basic accounting, marketing, business finance and personal finance courses of which basic real estate is only a sliver.  Business law is a necessity to be in business. Real estate law is a necessity to specialize in real estate.

Buy a text book for Realtors taking their exam, that's the basics I'm speaking about. Read blogs on attorney sites, read National Association of Realtor news and discussions, read finance materials from government sites, read appraisal guidelines with professional organizations or find a reliable source that consolidates such material. Public internet sites are a social gathering of all types, it's not a good place to form a real education when you might be listening to a guy with an insurance background trying to spin some real estate program. Read my blog, how to develop a good BS Meter!

I'm not saying you need to go to college, I'm saying to walk in the shoes as professionals in this industry you need to understand the basics of the industry, need to speak the proper lingo, not "investor guru talk". Understand the language of business, many don't know what a contingent liability is, so touch up on accounting terms. Goes for a quick read in business law as well.

Contrary to popular belief, it doesn't take long to learn the basics of real estate from a formal or specialized professional organization......such as an appraisal school. People spend more time in forums and listening to BS guru junk than they every would just taking the effort to actually study and learn things the first time and then go off listening to ideas of how to do a deal.

The issues is pretty simple. Those that teach systems, plans, programs and how to make your money in a week are selling a service and or a product, they are NOT educators, but they play like they are. That's not real estate nor is it the industry, it's another business that leaches onto real estate under the guise of education. Yes, they do give out information, but because no one learns real estate, all those "students" can do is follow step by step what they have been told, pretty much the blind leading the blind.

Now, there are some great tactics out there, but before you go to war, everyone needs to go through basic training. Many are simply too lazy and/or too greedy to bother, we've had young people on here who basically said there weren't wanting to learn, they just want to pull off a few deals and go on, kinda like robbing a gas station, just grab some money and slither off into the night. That's not everyone, but those types are here and there are many others willing to take their money to give them what they think they need, selling them "how to". These types will never be professionals, they lack the mind set to be in business, they are the wheeler dealers, the back lot car salesman, the door to door brush salesman, the "music man" who sold parents on his "think system" to play band instruments. Scammers, it's much easier being one of these than attempting to follow a professional path.

Opportunities arise from situations, not because a house is vacant. People own them or entities run by people. Real estate is a social business, it's an art and a science. You need to recognize when these owners have issues with ownership, from that you devise a way to solve social and financial problems. You can spend ten grand on mailing letters, but if you can't solve the problem when they call, you didn't make zip!

Knowing real estate, how values are made and based upon is the basis for the understanding of how money is really made and generated in real estate. The economics of real estate. A good flipper employs these aspects even if they don't really understand what they are doing, a bit of luck and common sense sometimes prevails.

So, those who learn by methods are lost in identifying an opportunity, the look for the method to fit the people they are dealing with when they should be working with the people and directing a course to solve the problem, thereby creating an opportunity.

I've never driven by any property with a sign in the air saying "Opportunity Here" with an arrow pointing at the property, it's never happened!

Most often when you work with a motivated seller, you really don't need money. If they need help and they can see that you can solve their problem without getting financially involved, they are usually willing to listen and work with you, that's my experience.

Professionals are to act ethically, that means directing others down a path that is acceptable, prudent, fair, yet still profitable for the dealer or operator. So, if you hear some wise guy investor say "if you don't feel bad making your offer, you offered too much" those types don't have a clue what real estate is about, they certainly aren't professionals in real estate.

You just can't get there without a solid education. It doesn't take that long and it certainly isn't that hard. The reason we have so much trouble in this industry is due to the very low barrier to entry, that's too bad to. Don't attack real estate as if you found a money tree ripe for picking, go at it as if you're growing that money tree to serve you for the long haul, you'll be more successful.

Study the science first, then the art.  Many here can give you great advice, learn who they might be, it's not the majority. Good luck to you! :)

Yadira Gutierrez · Answer

@Bill Gulley

Well said. Truly appreciated.

Just want to clarify that I am willing to work hard on obtaining "the basics of real estate and business that develops entrepreneurial skills". I am not here for the easy money, I know this a very serious industry and doing the "dancing" as you said, would be nothing but disrespectful to the professionals in the field. I am not considering leaving my job in the near future.  I am fully aware of the risks and I am willing to take "calculated risks" like in any other business.

But back to the main point - my  lack of knowledge and entrepreneurial skills. If I am not ready to invest, what would be your recommendation to start building that knowledge? It might be obvious to you but for somebody like me not necessarily. There are many options out there; yes, from all kinds of programs, and gurus, and REIAs, and scammers. I am interested in what would you recommend.

Also, could you please give  some examples of the strategies or business models you are referring to on the following statement? I just need some examples to do some research, get educated, and learn the skills needed.

"Invest your time, minimum capital, and knowledge to capitalize on opportunities that you find. There are safe ways of obtaining control of properties or interests in title with no or very little money, but to do them correctly requires greater skills and education."

Again, thank you for taking the time to respond and I am looking forward to hear from you.

Regards,

Yadira

Michael Lee · Answer

Hello and welcome to BP!  You have a ton of stuff to address.  I would consider a partner that provide you with talent of money you need.  House hacking is a good idea from a loan standpoint but your equity will grow slower with that but it is a decent way to get started as long as you are not facing your age like I am.  I am 59 years old and I am married.  I have been in the construction business since I was 17.  I got a business degree with an emphasis on real estate.  I also got a broker license right after that degree in 1980.  My Dad has been In real estate for about 40 years and I learned a little bit from him.  I did a few deals for other people.  I have no individual experience yet.  If you think I can help you in any way please contact me at any time.  Good luck!  Be patient and consistent.  I like Fix ad Flip.  Be real careful and aware of your property location.  Diversity and population growth are important. Get a HELOC as a last resort to use.  LOC are a good way to go.  Prices are kind of high right now. So start slow.  Bye.

Michael Lee · Answer

Hello! I am so sorry that I am just getting back to you but I just figured that this option was available.  The Chamber of Commerce is one of the best places to find that metering,  You could probably get that information from a local and experienced Agent of real estate.  I hope to hear from you again on construction or real estate.  Best wishes!

David Faulkner · Answer

That sounds like an excellent question for your mortgage broker, and I'm not one. In my case I was somewhat lucky and it was easy because I moved in with my wife in "her" house for a year when we got married and turned "my" house into a rental without the need to refinance. Then, when the time came to buy "our" house together, it was easy to cash out refinance "my" house because it had already been seasoned as a rental so the income it produce counted (75% of gross, anyway) towards our income. In the same manner, we could've easily cash out refinanced "her" house after another year of seasoning it as a rental. In other words, it gets easier as the snowball gets rolling, but yes, the 1st and 2nd could be tricky.

One other option I've heard is to house hack a small multi (2-4 unit). That way, it already gets "seasoned" as a rental while you are also living there, though I'm not sure if a bank would accept rental income from all the units, or just the ones that were rented (minus the one you occupied). I haven't personally done this since I've stuck with SFRs, giving up some of the better cash flow and diversification from multi's in exchange of a better renter pool, appreciation, and liquidity of SFRs.... again, a great question for your mortgage broker/banker, though; this is why it helps to network and build your local REI team, as well as your virtual one here on BP ...

John Arendsen · Answer

You've received and will continue to receive a lot of very good and sound logic for investing in RE today. That stated, many of these folks are relatively young albeit very successful investors who've done very well in RE during the past decade or should I say since the '08 meltdown that actually started in '05 to be real.

During these past ten years anyone who could fog a mirror and had some cash and/or some smarts could have or should have done well whether they invested in RE or the stock market as they've both rebounded very well during this last spurt.

I'm no guru by any stretch but at 70+ years old and God willing still swinging, I have lived through at least 7 economic downturns from the '69 aerospace debacle to the '73 & '79 oil embargoes to the 79 Jimmy Carter 18 to 21% inflationary crisis to the '89 mortgage debacle to the 2000 high tech meltdown to the '08 mortgage meltdown.

All that stated, what I'm seeing now is the absolute worse time in America's socio- economic history. I have ample cash to invest in just about anything I wish to invest in. However, my main goal at this point and time in history is to preserve capital until the dust settles a little and I can see blue skies ahead.

If you were one of my 5 Children or 14 Grand Children I would advise you to sit on the sidelines for a bit, take a chill pill and wait out the storm that lies ahead. No one has a crystal ball that I know of but I've never seen such stormy seas in my lifetime.

One thing I can say from personal experience and for a fact is that when the dust does settle, and it will, the folks with the cash will rule the roost. If you're sitting on some cash that's burning a hole in your pocket I'd keep a sittin for a bit and watching with eyes wide open. Don't be so anxious to pull the trigger.

You're young, smart and ambitious but hopefully not to impulsive. Keep socking your cash away and sitting on your home. As another member/contributor so aptly stated keep a pillow under your head. Protect your home.

Just my 3 cents worth adjusted for inflation.

Brandon Sturgill · Answer

@Yadira Gutierrez You never mentioned a construction to perm loan....wrap your primary and do a hard core rehab or build a house...good times. :)

Best of luck in whatever you decide!

Yadira Gutierrez · Answer

@Michael Lee

No experience? With that background? You are a thousand years ahead of me!

I will take you on your offer for assistance. I thank you for that.

In the meantime, could you clarify/explain these points a little more?

Diversity and population growth are important.

How  do I make this analysis. Where do I find this data?

Get a HELOC as a last resort to use.

Why?

Regards,

Yadira

I have the money, here are the options, what would you do?

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