All Forum Posts by: Account Closed

I thought I would share this experience as an example of how investment expectations can differ drastically from reality. Luckily the amounts involved here were relatively small, and it was more of an annoyance than anything else, but the lesson learned was incredibly important.

Several years ago I was living in London, and put some extra cash in a P2P account with Zopa (the UK equivalent of Lending Club). I had no investment plans for those funds, and was attracted by the promised 6 percent (and up) return. I also liked that Zopa emphasized if I ever needed that money, the platform would take care of selling the loans to a new buyer, and wire me a lump sum. Plus, I figured, finding a buyer would be a speedy process since the website’s user base was growing every day, and rates weren’t going up anytime soon – how hard could it be to sell a 6 percent loan?

You can probably guess where I’m headed with this…

Fast forward to March 2017. In preparation for my move to Dallas, I decided to sell all my P2P loans and transfer the lump sum to my checking account. Being incredibly tech savvy, I successfully logged into my account and clicked “Sell”. After agreeing to the relevant fees, and already making plans for what to do next with the money, a window popped up with my payout – for significantly less than my principal! Apparently a combination of technical issues, less than expected buyer appetite, and delinquent borrower payments meant I would not be able to sell the entire portfolio at this time, and I should try again after several weeks.

Well - 7 months have gone by now, and I’m still slowly unwinding that portfolio. While most of it has now been sold, this was definitely a wake-up call on how easy it is to take things for granted. Of course I read the disclaimer saying significant delays are potential issues, and of course I knew that private loans are typically more difficult to sell than public stocks. But like many people, I brushed off these risks, seduced by the attractive rate of return, and the assumption that if needed, it would be easy to sell and walk away within a reasonable time period. Clearly that logic was silly, and if I pride myself on being conservative with real estate, why wouldn’t I take that same approach with my other investments?

So whether you have your money in real estate, P2P, notes, ETFs, bitcoin or stocks, I just want to emphasize the obvious lesson to readers - always ask yourself what happens if your expectation on timelines are wrong, and what will you do if your main exit strategy is no longer possible. Sometimes the unexpected happens, and that flip you expected to sell in 2 months could easily turn into a 5 month holding period. Or that crowdfunded loan you expected to be able to sell quickly if needed – guess what, no one wants it anymore! I have about $100 in loans left to sell, and that Zopa account is my smallest holding – but man of all my monthly statements, that’s the one I always pause and think about the most, if only because it’s a fantastic reminder that I should always stay vigilant and prepare for the unexpected. Hopefully you will too BP.

Good luck!

Also helpful hint if you want to know where to find an investor - if you're living in off-campus housing, ask your landlord

Hi @Stephanie J. Valme 

First off - congrats on taking the first step. Asking questions and taking action puts you ahead of 99% of your peers and you should be proud of yourself.

Second - I'd agree with several of the posts here. The most valuable commodity someone your age has is time, meaning if you're serious about this, you can absolutely (i) go to school, (ii) get a part-time job to start tackling that debt (reception at the student center is a great one because you get paid to do your homework and read books!), and (iii) still have plenty of time left in the week to offer an experienced investor free assistance. By the way - experienced investors LOVE seeing ambitious young people willing to work hard to reach their goals, someone will gladly take you on.  

Also I'm not sure where you are in this, but starting to track your spending and learning to live below your means is probably the most impactful decision you can take right now. Downloading Mint and setting a spending budget will pay massive dividends, and is very simple to do. That alone was one of the most valuable steps I took in my early 20s, even if my income was low. 

Personally, I would do the above before running to buy a deal (note, I didn't say you had to completely pay off your student debt, but you do need to take control of your finances and have a plan to tackle the debt). Also, since I just finished it last night, and agree with everything in it - Set For Life by Scott Trench offers a great blueprint for getting started in your 20s.

Good luck!

Unfortunately out of town this time, but see you guys next meetup!

@Antoine Martel - thanks, I could be wrong but my understanding was an FHA requires proof of income. I'll double check though. And you're right, my backup plan is to continue renting and use my future business cash flow to qualify in the future. But wasn't sure if there were other options available.

@Poem Turner - great thank you! I’ll send you a PM

@Bill Hamilton - thanks Bill! I’ll reach out, maybe there’s a program that fits well!

@Ronald Rohde - thanks, I think we have the same definition and my savings is more than $100k, but my ideal purchase price of $150k is separate and intentionally below my means. I was looking for financing options so I don’t have to tie up a ton of equity in a house purchase, and instead use that for business + reserves. I actually haven’t heard of no doc loans but that could be a great option! Thus far I had only seen long term financing options if you have proof of income. 

@Antoine Martel - Yup, that's right. I would be living in one room but yea, even if I had to move out it should still cash flow.

By the way for some reason when I read my original post, a part of it is cutoff. Just in case it was meant to read:

*My goal is to find a 3 bedroom SFR for less than 150k, live in one room, and rent/airbnb the other 2.

Hi all - I'm wondering if anyone has banks/lender recommendations in DFW who can help here: 

I'm starting the search for my first property (thinking North Arlington area). My goal is to find a 3 bedroom SFR for less than 150k, live in one room, and rent/airbnb the other 2.

The issue however is that I'm newly self employed, so I don't have a W2 or income history. On the flip side, I have a good credit score (750+) and high cash savings. Since I'd prefer to use the cash for reserves + my business, I was hoping to find a long-term financing option for the purchase. Does anyone know a bank/lender recommendation who can help in this type of scenario? I'd like to avoid HML and short-term financing in general, and would be willing to put a 10-20% deposit if needed.

Thanks!

@Long Nguyen - like some of the folks above say, I would caution against making investment decisions based on which direction you think the market will go. Rather, I would advise that you not be afraid to evaluate deals, but always do so with a defensive mindset, and keep asking yourself what are the potential problems for a specific deal, and what would be my workaround if that problem arises. For example, if you are a long term buy and hold investor and you find a deal that cash flows - great, market prices dropping are probably less of a concern to you. But what if (as an example) you based the deal on current vacancy rates of 2%, and vacancy rates suddenly go up to their 2010 highs of 6%. Do you have enough cash flow coming in to cover you? Or have you already stretched your finances thin because you didn't plan for bad times?

Usually the folks who get burned are the ones who fail to ask themselves "what can go wrong in bad times, and what have I done to mitigate that risk" (e.g., you flip a house with HML because you think the market is hot and ARVs in 3 months will be at current or higher levels, but don't plan for a market slowdown). Obviously it's impossible to protect against every doomsday situations, but if you only pick deals that provide enough of a buffer to carry you in difficult periods (2010 is an example reference point), market cycles become less of a concern because you've already prepared for the bad times, and get to benefit from the good times. Good luck!

Hi - sure but my point there was maybe a solution is getting private lenders you know to lend to your company (vs a bank)

Looks like the bidder who pays a premium is doing so because they are happy with a lower return than 18%. So if you are owed $23.4 on a $130 lien (18%), and someone pays $300 for it, then they are happy with an 8% return (23.4/300).

I know NJ also has unique rules around the winner in certain circumstances getting the right to collect interest on subsequent tax payments without having to go to auction. Maybe a NJ investor can chime in on that piece