Rebuilding Capital after First Investment!
North Las Vegas, NV · Member since 2018 · 35 posts · 6 votes
Self sustained income source. I didn't start by buying hold properties. That's a one time use of funds, and as you are seeing, you then need to replace them to move forward. Very time consuming, and VERY expensive to you.
The alternative is to flip the cash you have at the start (Seed money), reinvest it in the next flip, and continue to do this over and over until you reach a point where your seed money has grown large enough to take the flipping profits from every subsequent flip (only the profits...the seed money continues to flip, over and over), and invest that into the holds. This becomes your own private source of funds...and, in the end, if you look closely, you should never spend a dime.
Sure. It comes from an understanding of what cost is to a Buy/Hold investor. It isn't the same as it is for a Flip investor. Cost is what comes out of your pocket...what YOU actually pay, not what the total cost is (PI) because you don't pay it...your tenant does.
This should mean only your down payment. However, if you add money out of pocket to pay down the principle, that comes out of your pocket and becomes an added cost that you pay...instead of your tenant (and your tenant wasn't complaining about buy your property for you (rent).
So, if you make an offer higher than asking price, but negotiate terms that include a lower DP and lower interest rate, your cost (DP) is less, and your cash flow could be more. Now the total cost (PI) is higher, but since your tenant pays that for you, it doesn't impact you...unless your CF is lower and, you start turning a true profit faster when you recover your cost (DP). Since you have a lower DP, the time to recovery (and profits) is much faster.
The result is:
1 - Lower cost to you (DP)
2 - Higher CF total since your payoff/recovery of your only cost (DP) is much faster.
3 - Seller gets more money since the total interest charged would be higher.
I am just about to offer on a 5 Unit Multi Family RE property myself. It’s a Land Contract Situation and my realtor and I already know there are multiple offers. If I could offer slightly higher then asking, negotiate his requested DP down from 30% to say 20-25%, my initIal all in is lower. Do I understand that correctly? Then my rents will cover the cost of the Land Contract either way, giving me more monies to spend on upgrades. Which will in turn allow me to charge higher rents.
Is this the concept you are getting at?
Well done grasshopper.
@Kendrick Smith save your cash, show your business model and investment is successful and get a silent partner. You put up some cash, they put up the majority and you run the property. That’s what I did and was able to purchase 3-4 foruplexes a year, ranging from 300-500k in the first 3 years of investing.
One thing that might work is a 203K loan for the purposes of making improvements to the property. Or just a regular Equity Line of Credit using the property (not your personal home) as collateral. Or just a 2nd or 3rd loan against the property.
Issues with this are legion:
1) For a 203K loan, you actually do need to use the money for property improvements, as they may audit you to make sure you aren't just scamming the system to get another loan. However, in my one time getting an improvement loan, many years ago, I just needed to show the improvements already in progress or completed, and the auditor was satisfied.
2) This is a new loan against the property, not necessarily with a favorable interest rate, so you're going to kinda hope the rental income covers at least most of the additional debt service.
3) See your tax professional, but my understanding is that interest payments are not quite as deductible as they once were, so it won't be quite as beneficial against high taxable earnings.
4) I believe the 203K loan is not available to apartment buildings with more than 4 units. However, I'm sure a little research would turn something else up, certainly at least a 2nd from private investors.
BUT -- and work your numbers carefully or this may be useless -- if the numbers work out, it'll be just like starting over from scratch. You'll have some cash available for investing again, and no passive cash-flow (absorbed into new debt service). Not quite starting over, of course, since you will also still have your first RE Investment!
I'm so glad I took Joe on as a mentor when I first started. The best lesson I learned was how to recycle the seed money. Best lesson ever.
I'm so glad I took Joe on as a mentor when I first started. The best lesson I learned was how to recycle the seed money. Best lesson ever.
Glad things are working out for you. How are things working out for you? We need to meet for lunch to catch up.
I'm so glad I took Joe on as a mentor when I first started. The best lesson I learned was how to recycle the seed money. Best lesson ever.
Glad things are working out for you. How are things working out for you? We need to meet for lunch to catch up.
Im retiring from the rat race in 32 days lol.
Yes, no....and maybe?
Yes, if you are dealing with seller financing.
No if your lender is limited on what credit products they are selling.
Maybe if your lender (and this is more common than you might think) has a program that is different than the one with 20%. Ask. You may be surprised.
I'm so glad I took Joe on as a mentor when I first started. The best lesson I learned was how to recycle the seed money. Best lesson ever.
Glad things are working out for you. How are things working out for you? We need to meet for lunch to catch up.
Im retiring from the rat race in 32 days lol.
Congrats!!! Lunch is on me.
I am just about to offer on a 5 Unit Multi Family RE property myself. It’s a Land Contract Situation and my realtor and I already know there are multiple offers. If I could offer slightly higher then asking, negotiate his requested DP down from 30% to say 20-25%, my initIal all in is lower. Do I understand that correctly? Then my rents will cover the cost of the Land Contract either way, giving me more monies to spend on upgrades. Which will in turn allow me to charge higher rents.
Is this the concept you are getting at?
Well done grasshopper.
Joe. I have to give you an update on this conversation. With a pinch of background.
I have wanted to be a RE investor ever since I was 16. My good friend and I would drive around looking at apartment buildings, count the units and calculate the ROI and NOI just for fun. We had no idea what those terms were at the time but that is what we were doing. So it's been in my blood for a very long time.
Fast forward now to me being 42, running an HOA painting/minor construction biz in CA, etc. started self learning about out of state properties as opposed to buying overpriced in CA. Joined groups. Watched videos. Read posts. Watched videos. Read more posts. Saved what I could. And then saved some more. Made contact in an out of state smart investment city, with a very old and good friend who runs a contracting biz. He suggested an agent. Hired agent who knows investing. Looked for deals. Made offers. Got denied. Found more deals. Made more offers. Didn't work out. Found a solid deal simultaneously to me officially joining BP. (I don't know why I waited so long to join, I usually just listended) Upon joining (same day) I read your response in this post about negotiating DP.
I did what you said. Used that strategy. My realtor was like, (Paraphrased) “Dang, that’s a bold move for your first property, but I like it.”
This morning at 7:00am he called me and stated offer was accepted, amongst many offers he had! Land Contract style. 10 day contingent. I put less money down then what Seller was asking. We also negotiated the monthly payment terms to represent a positive cash flow. But check this out. It’s a 5 unit. I only planned at best to start out with maybe a duplex and I’m now in this thing with a commercial property to start. So Joe. I don’t know you. But I am overwhelmed with gratitude at your willingness to share. Thank you Sir.
Grasshopper plans on grazing the wheat fields for many more morsels.
I respect other strategies people have suggested. Certainly, if you know flipping and can manage contractors, and know your market, there is money there. But my wife and I choose a different idea. We have another business plus our rentals, and I have a full time job, we enjoy our jobs. We aim to plow 80% of our cash flow each month into either paying down debt, or lines of credit, which we use to obtain, you guessed it, more properties. We like the Dave Ramsey book 'Total Money Makeover'. My banking partners like to see good credit score, and low utilization of lines of credit.
We also pray about our investments, and ask God to bless what we are doing. We only make offers on properties that achieve a really good cash flow, and where there is a value add.
I am just about to offer on a 5 Unit Multi Family RE property myself. It’s a Land Contract Situation and my realtor and I already know there are multiple offers. If I could offer slightly higher then asking, negotiate his requested DP down from 30% to say 20-25%, my initIal all in is lower. Do I understand that correctly? Then my rents will cover the cost of the Land Contract either way, giving me more monies to spend on upgrades. Which will in turn allow me to charge higher rents.
Is this the concept you are getting at?
Well done grasshopper.
Joe. I have to give you an update on this conversation. With a pinch of background.
I have wanted to be a RE investor ever since I was 16. My good friend and I would drive around looking at apartment buildings, count the units and calculate the ROI and NOI just for fun. We had no idea what those terms were at the time but that is what we were doing. So it's been in my blood for a very long time.
Fast forward now to me being 42, running an HOA painting/minor construction biz in CA, etc. started self learning about out of state properties as opposed to buying overpriced in CA. Joined groups. Watched videos. Read posts. Watched videos. Read more posts. Saved what I could. And then saved some more. Made contact in an out of state smart investment city, with a very old and good friend who runs a contracting biz. He suggested an agent. Hired agent who knows investing. Looked for deals. Made offers. Got denied. Found more deals. Made more offers. Didn't work out. Found a solid deal simultaneously to me officially joining BP. (I don't know why I waited so long to join, I usually just listended) Upon joining (same day) I read your response in this post about negotiating DP.
I did what you said. Used that strategy. My realtor was like, (Paraphrased) “Dang, that’s a bold move for your first property, but I like it.”
This morning at 7:00am he called me and stated offer was accepted, amongst many offers he had! Land Contract style. 10 day contingent. I put less money down then what Seller was asking. We also negotiated the monthly payment terms to represent a positive cash flow. But check this out. It’s a 5 unit. I only planned at best to start out with maybe a duplex and I’m now in this thing with a commercial property to start. So Joe. I don’t know you. But I am overwhelmed with gratitude at your willingness to share. Thank you Sir.
Grasshopper plans on grazing the wheat fields for many more morsels.
Jeff, you made my day. Congrats!!