All Forum Posts by: Doug Lovett

I do bookkeeping for real estate investors and have a client that bought a house where the seller needed post possesion.  They did an escrow holdback at the title company.  The seller didn't move out in the allotted time and forfeited the escrow holdback, which the title company sent to my client.

What is the best way to treat this: 1) other income or 2) a price concession on the purchase price?

@Michael Plaks what's your take?

The 70% rule works for properties with an ARV of about $200k up to $400-maybe $500k. On houses below $200k, the 70% rule gives you too low of a profit - you need to lower it the lower you go (ie a $100k ARV would probably be a 60% rule). For higher priced properties the 70% rule gives you too high of a profit and your offer won't be competitive.

Don’t rely on wholesalers to run numbers for you. Run your own numbers and make an offer that works for you on EVERY property you analyze. If the wholesalers numbers are way off you may be the only one making an offer - even if it is tens of thousands less than the asking price. 

As mentioned by others, get a quote from alpha foundations. Also get one from ram jack. 

Point I'm making is this - If I buy 100k worth of stocks and I buy a 100k investment house and hold them for 50 years then cash-out - the stock investment will be valued higher. That's it - the annualized return will be higher over the long term.

You’re ignoring the effects of leverage. Most people finance investment properties instead of paying cash and that magnifies the return. So instead of $100k worth of real estate earning x% return, you’ve got $400k earning that return. Yes, there is a cost (interest) you have to pay but it is tax deductible. In 50 years, your $400k in real estate will be paid off and will be worth WAY more than a stock portfolio. That’s the magic of real estate, the ability to leverage it. 

On the topic of traditional 401k/IRA vs Roth, it is just a question of the tax rate. If you think your tax rate will be higher in the future, you should do the Roth and pay the lower rate today, if tax rate is lower in the future, traditional and pay the lower rate in the future. If same tax rate, it doesn't matter which way you go.

The list toward the beginning of this thread listing the pros and cons of 401k’s left out the biggest con: high fees. I would put money in the 401k to get the match but not a penny more. 

One last thing, it’s interesting to hear people’s biases. When I was a financial advisor, other financial people were against real estate as being “too risky.”  Among real estate investors, many are against the stock market claiming 1: Wall Street is rigged 2: Wall Street is a casino and/or 3: houses don’t go to zero. 

There is a group of very high net worth individuals called Tiger 21 and they put out a summary report of their members asset allocations from time to time. About 80-90% of these investors assets are about evenly split between stocks, real estate, and holdings of private companies with a little bit in other assets like hedge funds, currencies, commodities, etc. 

For us regular folks a 50/50 split between stocks and real estate makes sense. They each have pros and cons but having both gives you flexibility. 

Another thing to keep in mind, there are predatory lenders out there. Obviously I have no idea who your lender is or if they are predatory but I know there are lenders that take advantage of investors. Their goal is to take over the property and flip it themselves. There’s usually way more profit in that - plus they get to keep your down payment - than there is in lending money. Most lenders are not doing this but there are some out there that do. 

For future projects, I would look for a different lender and ask them how they handle contingencies before doing the loan. 

Look into the 203k loan product. I don’t know the details - only that it is meant for situations like yours. 

Wholesalers typically don’t use the same contract as a realtor. My contract is 1.5 pages while the local real estate agent contract is 17-18 pages. 

In most off market transactions the buyer pays all closing costs. 

Find an investor friendly attorney in your area who you can use to close your deals and ask them what paperwork is involved. 

Quote from @Joyce Adams:

Hi. My name is Eric I would like to know could you flip auction properties with a contract.

No you typically have to pay for them the day of the auction so there is no contract. You could buy a property at auction and then resell it to another investor immediately but you can’t wholesale auction properties. 

In my opinion, foreclosure auctions are not for beginners unless you have very deep pockets. One thing to keep in mind is you typically have to pay for the property in full the day of the auction so it’s a cash purchase.

Also, it’s a crapshoot what the renovation is going to be because you can’t get inside to see what needs to be done until after you own it. A big surprise on the downside on your first deal may be the end of your investing career unless you have ample cash reserves to absorb a big loss. 

If you want to work on foreclosures, try to buy them before they go to the auction. You should be able to get a list of upcoming auctions and work on getting in touch with the owners before the auction and you can do a more traditional purchase. They often have their head in the sand and are ignoring the problem so phone calls and mail may not be very effective. You will likely have better luck door knocking. 

As a beginner, I would focus on driving for dollars. Look up Zach Boothe on YouTube and watch his 40 day challenge from a couple of years ago.