All Forum Posts by: Jon Passow

So, you've done some thinking, so what city/urban population, do you pick?

Why don't you move there and visit (what you'd be leaving in) Willits after you're set up?

Jon,

Being overly polite here will be unkind. 

The truth is that from where you are today, investing 'out of state for better deals' concept is totally misguided and scares me!  And you ARE where you are today. You are not in the future and hustling your $20k together can be done without leaving town. In fact, to get yourself this first twenty you will need to do it where you are.

I like to be near to any project I'm doing. I mean really close!  One wonderful property I have that's forty minutes away from where I wake up every morning is at the outer limit of my 'zone. I don't need to go there more than a few times a year. Without my involvement the $4500.00 monthly rent keeps flowing in. I did this deal many years ago and it took a fortune of cash.

I worked *hit properties to get that cash.

In your case, Jon, I'm going to be honest and say it is highly likely there's a mysterious allure to having a plan to buy a whole bunch of units 'way out there' as if you have discovered some really cool advantage that others have missed.  Reality:  There are others who are there and/or have people 'there', and others who have local knowledge and cash in their pockets.

That sort of image is safe, you need to do nothing, it's a dream for now and will remain a good dream as long as you do not do anything.

Just for you:

Look at something close and ugly, e.g., 236 Alice Dr, Wilits, CA (I found this as I am writing to you here)

https://www.google.com/maps/@39.38686,-123.3430735...

This in your face, likely 'an ugly situation' all around, but it is there, and you will learn.

When I was 20 years old a guy told me, "Look at 100 properties and make no offers until, and then after you have reached 100 make an offer on 101, and on everything you see"

To me this suggested learning deeply about an area.

Did I write 'harsh words? I do not mean to offend you in any way. 

Big brains and Big Plans are nothing next to 'action'.

Hey Jon,

I had never heard of Willits, CA, until just now.

This scenario RK sets-up here seems a lesson in hustling and actually does not make sense unless you are marketing to all-cash buyers. Banks are not going give a no-down loan as he suggests the new-buyer will get.

I agree with you, the money needs to come from somewhere to payoff what's owed on the $20K.

Jon, I'd suggest you NOT focus on this page in this book and I'd suggest you think of ways to shake up something for yourself where you are.

In your setting, I'd ask who's your buyer? Who is going to buy what you are going to be selling? Or, if you want to keep the house and rent it out, ask: "Who is the renter going to be?" 

That hospital has people who may be good renters. Frank R. Howard Memorial Hospital

Simply put, when I do deals in Greater Boston, I want to attract people with money!  I want people who have a good income to want what I own. Some people cannot save money (never have a down-payment) but they do pay their rent on-time!

This 'Courthouse steps' is something that you can look into. Learn the process, as towns have different procedures. Call city hall and speak to the treasurer. This person will tell you something of value.

Typically, when taxes go unpaid for a certain period of time the municipality can begin a process to take the property. It's a long process in many places. Learn about your town. Find people who are pre-whatever.

As for the Bankruptcy Attorneys: That's something you may want to look into. I'm not going to say anything.

I went on Zillow in your area and found this foreclosed property thats been sitting around for a long time.

https://www.zillow.com/homes/for_sale/Willits-CA/f...

Call the Broker and ask his for help. Tell him what you want to do, become un-stoppable.  Impress him with your attitude and that you never quit. Don't take no for an answer and go as though you've won.

Come on back to your hometown of Cleveland Jon! LOL

Great cash flow, not much appreciation.

@Jon Passow Another practical way to look at it is to play the scenario in reverse.  Let's say you saved up $20K over the next year.  Someone you don't know comes to you with their first real estate investment idea, it's an out-of-state (a place you've never gone) location and major rehab project (which they don't have experience estimate costs or time) and they want to buy-and-hold it but need someone to put up the 100% of the down payment so they can finance the rest.  And then they tell you they're going to need rehab costs as well so you'll either need to refinance your house or take out cash-advances on credit cards.  And they hope that in 8-10 weeks with zero money of their own they can go to a bank and refinance to get you your $20K + rehab costs back + points and interest to make it worth your while.  And they also have nothing in terms of collateral to put up.

I know that's not an exact analogue but I'm trying to make a narrative up for "story time". Now go and tell your girlfriend that this is an investment that you want to make. Your entire life savings, new debt (either a credit card or refinancing your property) in the hopes of making a return lending the money. What interest rate would you think is fair for that proposition? What interest rate do you think your girlfriend would think is fair? Even if this mysterious stranger buys the property at 60% of "fair market" I'll go out on a limb and say that both of you will think: it's way too risky, they don't have skin in the game, how do you know they'll follow through, what if they change their mind, what will stop them from walking away, etc. If you're honest with yourself you'll probably arrive and a *really* high interest rate that it would take to mitigate your risk. Then you have to turn around and ask yourself, would I want to pay that interest rate for access to capital? Usually the answer is "no" :-) Net result, it's a similar "ask" that you're making of an HML.

Now play the story back again with either: a.) a person with a track record of having done this 3 times already and/or b.) they are putting up the $20K for the down payment and you're lending the rehab costs.  Odds are you'll look at the deal a lot more favorably.

The fun part is that "put yourself in the shoes of the lender" scenarios is akin to what a lot of guys do when they talk about sports trades.  They can always come up with deals that "make sense for their team" but when you start asking "why would the other team do it?" they stumble through some haphazard ill thought out answer.     

@Jon Passow You're missing my point, you need to look at what you can achieve with your financing situation.  Then look at how to parlay that into reaching your goals.  Right now you've architected a nice shiny building...that doesn't have a foundation.  You're sketching out "Year 3" rather than figuring out "Property #1".  

So how would I go about it? Get your W2 on track so you can start to save. Use savings for a downpayment for your first investment property. Combine it with funds from a HML if you have to in your rehab scenario. Use "Property #1" to figure out if all of your assumptions are correct: rehab costs, timing, refinancing, etc.

Based on what little I can guess from "no capital" and $27K being your financial freedom number, there's no reasonable "how would you go about financing then?" solution for your goals.  I guess the easy thing would be to say "owner financing", "subject to", etc.  I'd say "partner with someone" but then you start splitting the cash-flow 50/50 (if the financer is generous).  

Even in those scenarios you'd have to come with the cash for refinancing. And those "owner financing" deals typically aren't going to come with the best terms, you'll have vacant units during rehab, etc. Then post-renovation you'll have a bill for the HML (who lent you to rehab money) and it's unlikely that increased cash-flow is going to let you pay that (and the debt to the owner) so you're back to dealing with a bank.

I'm sure you can run through some scenarios were a, b, c, d, and e all come together and coalesce but until you do it with Property #1 the who idea of scaling is putting the cart before the horse.   

@Jon Passow You have a plan based on interest-only private loans to your LLC? That it? That's the financial foundation of a plan that has you buying 25 units in the next three years? And you'll be buying *more than one new property per month* in Year 3 using these interest-only loans and $27,000 in annual cash-flow provided by the properties in Year 1 and Year 2? That's $27,000 equates to $1,800 per property. So you'll be refinancing properties post-renovation more than once a month? That's possible but I don't see where you get the capital to put down for the bank financing. On top of that you're purposefully buying properties that are in desperate need of renovation (i.e. more capital).

Sure, there are hard money lenders out there that will lend.  Far fewer will do it with no capital contribution from you.  The terms will likely get much more aggressive with no financial skin the game.  You'll be coming with an "ask" for both the buy-money and the renovation money.  But regardless of how that goes, you're still dependant on refinancing once your renovations are complete.  

Banks won't love your idea of having "zero money" in the property so you'll have to pull capital from somewhere. And you really "have" to do that to pay back the HML so you can (hopefully) recycle their money into the next property.

Bottom line, with "zero liquid capital" you could change your Year 1 goal to "Buy 25 units!" and it wouldn't make it any more or less reasonable.  

How much liquid capital do you have To get started? Cash-outs are going to require skin in the game, at least at first. The best commercial cash out I could find was 85 LTC which was about 65 LTV. Also, you have to pay for renovations somehow.

Plans are great, but the most important thing is DEALS.