All Forum Posts by: David Morrow

Hire an answering service.

That's the advice given by David Lindahl. He recommends writing a standard script of questions the service can ask of the caller. They will record the answers, set appropriate expectations for a call-back, and send you the lead. People are more likely to talk to a person than a machine, and you control what data you get from each caller without being tied to the phone all day.

As a disclaimer, I have no experience with direct marketing myself, I just saw an opportunity to regurgitate useful information from a book I just read ;)

Gurus keep selling cuz people keep buying. Mostly, members of BP are a different breed, but there are all those others out there. . .

I have a coworker buddy with whom I've been talking real estate for over a year. It was a mutual interest we discussed many times.

I read books, watched DVDs and listened to audio programs. I learned about landlording, tax planning, financing, and market analysis. I bought a multi family property, joined BP, and starting buying more properties.

He fell in love with a guru who (for thousands of dollars) will coach him through borrowing a quarter millions dollars that he couldn't honestly qualify for to buy a distressed hotel business that he has no idea how to run. I've attempted to delicately caution him about such a risky venture, but he's already drunk the kool-aid, and my words fall on deaf ears.

I wish him the best, but I fear the worst. I'm afraid he's just the next sucker.

There's one born every minute.

Aaron's answer is excellent, and I agree 100% with his advice.
AND, since I DO have the time to pontificate at length at 4:11 AM, I will add some thoughts:

While I have not read the materials mentioned, I would venture that everyone agrees that high interest, long term credit card debt is BAD. DEBT. Usually, when people refer to GOOD DEBT, its in reference to the low interest, tax deductible, secured debt like a home loan. What many people seem to ignore, but what real estate investors know very well, is the OTHER kind of good debt - borrowing money to put it to work to make more money. This is exactly what we mean when we use the term LEVERAGE.

SO, if you have money and your choice is to pay off debt or invest in a profitable venture, that is functionally no different than having no debt, having no money, and borrowing against (LEVERAGING) your credit cards to fund the venture. In that sense, it makes sense to invest for profit, and utilize that profit to alleviate debt.

The flip side to this equation is your extra risk factor. If you go over budget on your rehab, or if you can't sell and get overwhelmed by carrying costs, you've just exacerbated your debt situation exponentially. Be very, VERY confident in your deal, because it sounds like a make-or-break situation.

Steve makes a point that I hadn't yet given due consideration. On the surface, it seemed unwise to "pay" to officially live in a unit that I hardly have time to actually live in. Now that I dig into the math, it starts to makes sense:

Hypothetical quadplex for $100k
Rents at 600/unit
I "pay" $7200 to make one unit my primary residence.
3.5% down FHA vs best case 15% down NOO
15,000-3,500 = 11,500 cash saved
11,500-7,200 = 4,300 benefit

Suddenly, this is starting to sound like a good idea!

Thanks for that clarification, Mike!

Also - go to the search window in the upper right of your screen and type "best books". Your search will kick up a few threads of people's favorite titles, and you'll quickly notice that many titles get mentioned repeatedly. I did this exact thing, and decided on David Lindahl's Emerging Real Estate Markets, which I finished reading just this morning!

Twice today I've seen posts that demonstrate a gross misunderstanding of the 50% rule, so I thought it would behoove me to start yet another thread explaining this concept to my fellow knowledge-seekers.

The misconception I've seen is encapsulated in a statement similar to:
"I'm working on a deal that meets the 50% rule . . ."

The rule does NOT state that your property is good IF its expenses are 50% or less of gross revenues. The pitfalls associated with this misunderstanding are legion.

Rather, the rule encourages you to ASSUME that half of your gross revenue WILL be eaten up by operating expenses when averaged over time. In other words, when sizing up a deal, you should cut the gross income by half, make sure there's enough left to cover you debt service (principle and interest ONLY, since taxes and insurance are included in the expenses for which you've adjusted), THEN see what's left over as cash flow.

And, AGAIN, this is only a quick and dirty rule. Some markets have higher taxes, some have higher vacancy, and some properties have expensive deferred maintenance - all of which will drive your operating costs higher. Then some will have trouble-free tenants, maintenance free mechanicals, perfect structures, and great insulation - all of which allow you to pocket more loot.

For more no-nonsense knowledge, read this great article: http://www.biggerpockets.com/renewsblog/2013/07/13/annoying-misconceptions-newbies-love/

I am not in a position to answer your questions from any personal experience, but it would behoove you to read a book that is often recommended on BP called Emerging Real Estate Markets by David Lindahl. He goes into great detail about how to find and fund deals on apartment complexes.

The Ultimate Beginners Guide here on BP will also give a good overview of some financing techniques that you may need to employ in your search.

Elizabeth Colegrove - surely I'm misunderstanding you. It sounds as if you base your ROI on NOI rather than cash flow? Or by "without debt service bring counted" are you simply omitting equity acquisition through mortgage pay-down from the equation?

This will be purely NOO investment prop with cashflow the primary focus, and long term equity secondary. At the time of the OP, I was including taxes and insurance in the debt service part of the equation instead of the expenses part. I looked back at some older posts to find that I was wrong about that, and my adjust equation tipped to just barely meet my standards.

Since then, negotiations have progressed so that I'm looking at just over 10% CAP rate, and over 25% Cash-on-Cash return, even with barely over $100 per unit cash flow.

Jon Holdman - excellent point about the cost of self-managing. I am currently employing a PM, since the travel requirements of my job relegate me to an absentee owner. I never would have thought, though, to consider a management s expense even when it is only my time being spent.