All Forum Posts by: Bob Daniels

Don't try to over analyze a bad deal and try to rationalize ways that it could theoretically work out.  That is a massive 25% price markup, essentially limiting your exit strategies for many years to come, additionally a 17 yr payment schedule means your monthly payments will be too high to cashflow, and also reduces the positive effect of not having any interest because you are repaying the loan so quickly.  While I have bought properties for over market value because they were owner financed at 0% interest, this isn't one of those deals.  

Drinking a $5 cup of Starbucks doesn't fall into the category of spending money to make money, instead it simply falls into the 'spending money' category.  Having the newest iPhone, or paying for 500 channels worth of cable tv + the NFL package isn't spending money to make money.

Investing funds back into your business so that it can grow, or buying your first rental property are examples of spending money to make money, consumerist centric spending on the other hand is just spending.

Personally if his time is up and he wants to stay then I would take the opportunity to formally remove the wife from the lease.  This limits her liability if later down the road he stops paying or trashes the place.  It doesn't make any sense for a lease to renew itself if one of the parties no longer consents.  Sign a new lease with just the husband.  Let him know that in order to stay he must post the entire security deposit on his own, and would be responsible for paying the amount that you will be refunding to the wife.

Pro's:

- Steady stream of new renters, unlike traditional markets where it can be difficult to find a new tenant during certain times of the year

- Significantly higher percent chance that they will pay.  If they don't pay it's relatively easy to get a court judgement against them and then turn that over to the base and they will begin automatically deducting money from their paychecks.

- With a few exceptions, military tends to take slightly better care of the homes than your typical renter.

- Members tend to be self sufficient and won't call you asking to fix every minor thing that isn't absolutely perfect.

Cons:

Rent rate is fairly directly tied to the local BAH rates.  This can be either a good thing or a bad thing.

No long term renters.  While the turnover rate isn't terrible, expect your average military member to stay with you somewhere between 2-4 years.

Depending on the size of the town, the town could be heavily influenced by the presence of the military base.  So if the base closes, or reduces in size due to mission requirements, it could have a dramatic effect on the local economy.  Think Detroit when the auto industry imploded.

One thing that I haven't tried yet, but may try on my next property is renting the home by the room, similar to a house hack.  In the military there are plenty of young members who don't make a ton of money and are much more open to living with a roommate or two if it means they can live in a nice place while also saving money.  So instead of renting for lets just say 1500 for the house, charge 900 for each of the 3 bedrooms, and include utilities and internet into that price.  That way as long as there are at least 2 renters you should come out even considering you are now paying utilities, and come out significantly ahead when it is full.  It also reduces downtime as it is unlikely that there will ever be a time when there are 0 tenants so you should always have at least some income rolling in.

You must really hate wholesalers then.  Wholesalers don't put anything of real value on the line, and while they claim to be able to do great things for the seller, the reality is that most wholesalers have no idea what they are doing and more often than not end up hurting the seller because they waste the sellers time due to inability to close while the seller is likely already in a distressed situation where time = money.  When they can't deliver on their promises the wholesaler simply walk away and leave the seller in a worse situation as now they could be days from foreclosure instead of weeks or months away had they not wasted their time with the wholesaler.  

Oh wait, you don't hate wholesalers?  Or is it that you do in fact secretly hate wholesalers but still choose to help them anyway because you have found a way to profit off of them?  Offering packages all the way up to 2300 bucks would certainly make me hate wholesalers a little less too.
https://www.biggerpockets.com/forums/517/topics/766626-wholesalers-and-flippers-get-my-cleveland-mls-access-for-yourself


"Nobody has any respect for wholesalers. Whenever a wholesaler contacts me I simply get the information about the property & reach out to the owner myself cutting the wholesaler out of the deal entirely."
https://www.biggerpockets.com/forums/93/topics/754975-how-to-wholesale-with-no-money-or-license-is-it-even-possible

Wait wait wait. Let me get this straight, someone brings you a potential deal, and you go behind their back and cut them out of the deal and you want to talk about other people as being slimy?  -I'm so confused right now....Please enlighten me.

Lets step away from real estate for a moment and talk about football.  Why would anyone go for it on 4th and 20?  You'd have to be insane not to punt in a situation like that.  But what if there was only 5 seconds left in the game and you were down by 7.  In this scenario going for it on 4th down is the ONLY logical solution.  

The same principles applies to real estate.  Sometimes solutions that under normal circumstances would be considered sub-optimal, or even crazy, may in fact be your best option.  And that may very well be because you simply don't have any other options at all.  If the choice is a matter of being foreclosed on, or sell the property sub2, they are going to sub2 it every single time.

Now you could say well why doesn't the buyer simply go get a loan himself?  But then again we both know the answer is a combination of factors, but amongst them is that it is more expensive, and takes longer to process the loan which can often cause a deal to not be viable otherwise.  

Every single investor had the same opportunities that I have to hunt down deals.  Every single investor was able to submit offers at whatever price point, or terms that they wished to submit.  If a seller is willing to accept the risk involved in a sub2 deal, they do so because under the circumstances they were in, that for whatever reason, my offer was the best offer that they received.... Or to rephrase that and put it another way, the offers they received from other investors sucked even worse than mine did.  So I would counter your argument of "all sub2 deals are slimy", with a counterpoint of why is every other investor being so slimy that they are trying to price gouge the seller so badly by lowballing the seller that my offer is actually the best that they have?  If you would like to be so noble and offer them a better offer then go right ahead, nothing is stopping you.

Length of time you have held the property is irrelevant in the decision to refinance as long as you have met the minimum seasoning period and are eligible to refi.  (you are good).

Obviously ask around for price quotes, but I've found that most times the company you currently hold the loan through will typically have the best offer because they don't need to redo all of the underwriting and thus will save you a decent chunk of change on the closing costs. 

We get it James, you don't like Sub2 and you will argue against literally any point we make, even to the point that you advocate continually reducing the price more and more, even below what people owe on it just so that the owner don't have to sell it sub2.

Most people don't sell a home as a sub2 as part of their Plan A.  But there are plenty of times in life where Plans A, B, and C all fail.  To say that there is never a situation where a sub2 deal is beneficial to both parties is pure folly.  You would rather they sell a property for less than what is owed, hope that the bank agrees to it, have the home owner lose a bunch of money, and destroy his credit instead of sell a home sub2 for more money just because it 'might' tank his credit???  You don't think that short sale is going to destroy his credit???

If you're not going to listen to rational arguments advocating for judicious use of sub2 deals, then why ask the BP community to try to change your mind?  This post is wasting all of the commenters time if you have already made up your mind that sub2 is bad in all circumstances.

James, do you know a plethora of cash investors that operate in small towns with only 2,000 people?  Or during 2009 for that matter?  Not every city has investors frothing at the mouth over foreclosures.

@Bill F.  I think he was purposely simplifying the process when he said call the 1st sergeant and his pay would be docked because the exact details of the process are irrelevant to the question at hand.  A slightly longer explanation is the seller would go to civil court and get a judgement against the buyer which is easy to do since you have a signed contract that he is not upholding.  You then simply send in that judgement along with the paperwork for an involuntary allotment to DFAS and then his pay will be docked, I've seen it happen first hand to several people for not paying a variety of bills.  The military highly frowns on it's members not paying their debts, and not only would they garnish wages, it would also likely drastically reduce his ability for promotion so if anyone is likely to repay a sub2 loan, it would be someone in the military as there are direct ramifications if they don't unlike a traditional sub2 deal.

As for them potentially taking a hit on their credit score if he stops paying, yes that is a possibility, and a risk that the seller was apparently willing to accept in order to not lose money when they had to sell their home to him due to a PCS.  One scenario is they are apparently getting a couple of grand from him during the purchase that they otherwise wouldn't get if they sold to anyone else, set that money aside and make a few payments yourself if he isn't.  You can still keep the mortgage current enough that your bank isn't foreclosing on you, while you pursue legal actions and foreclose against him for non-payment.  Your mortgage can't even report to the bureau until it is at least 30 days late, so there is always a grace period where you could make a payment if he doesn't and then pursue legal paths to either get your money back from him, or foreclose on him.  All of my mortgages send out email announcements when a payment has posted, so it would be easy to still keep track if he is making his payments or not and if he is not, you could step in temporarily without ever dinging your credit score by using that couple grand that he gave the seller at closing.

There are risks involved in any sub2 deal, but often those risks can be mitigated to acceptable levels where the benefits outweigh the risk.

I have talked to Craig and sat through one of his initial appointment meetings, apparently at one point he owned 30+ million worth of real estate in Vegas, and then 2009 came and essentially wiped him out.  Now he is in the guru business.

You buy into his program which costs somewhere in the 100/month range.  In return you get access to his website that shows potential deals in the way of foreclosures etc, and other useful details such as amount likely owed on the property, and property value (estimate).  

If you could simply pay 100/month for access to the website it might be worth it to some people,however you have to also sign a contract with him that says that any deal you find by default he 'partners' with you and coaches and guides you through the purchase and rehab process.  For his expertise, he takes a 40% share of the profits when the property sells.  Additionally, if you decide to leave the program there is a clause in the contract that you sign with him that stipulates you either can't compete against him for deals in the local area for 3 years, or you owe him his percentage for 3 years, something along those lines that makes it difficult to ever leave the program, I don't remember which.

He says that buy and hold is the riskiest investment you could ever be in, that's easily said by someone who was wiped clean by buy and hold during 2009.  Instead he says flipping is the path to wealth.  And that may very well be a fantastic way to achieve wealth for him considering he is making 40% profit on every one of his pupils deals, while himself not carrying a single ounce of risk if the deal turns out to be a dud.

He seems knowledgeable and likely has useful tips for new flippers, however nobody should consistently pay 40% of their profits for small investing tips and bits of advice.  On a 50k profit deal that means he takes a 20k fee and assumes zero risk if the deal goes sour and the flipper loses money.  His pupils love the program and are happy that they are making money on most of the deals, but I just don't think that they realize how expensive his education is ultimately 'costing' them by permanently taking a huge swath of the profits.  I'm 100% positive that these pupils are making money not because of his expert advice, but because they are simply taking action.  Even a moderately executed flip would net them more money than a well executed flip due to his advice and needing to pay his enormous fees.

He takes in many thousands of dollars worth of fees for his advice while assuming zero risk.  While I'm sure he makes boatloads of money for himself, I would never support someone who operates a business model such as this.