These are the two basic real estate investment strategies I used to build a 8 figure net worth - with almost no debt. The 2 strategies are related.
1. Go with the “deal” that adds the most to your net worth rather than adding the most to your cash. Most people go for the cash. I’ll give you two specific examples. When selling a property, I almost always advertise that I’m willing to seller finance, with a decent down payment. Because this increases the potential buyer market tremendously, I’m able to obtain offers to purchase at a significantly higher price with seller financing than all cash offers. When the seller finance offer is greater enough to offset the risk, I accept the offer and carry a note. If I need cash for another deal, I borrow using the note I now hold as collateral, or use the note in a more creative way. If I am able to wrap the new note with a higher interest rate around an existing lower interest rate note, I’m further ahead.
A second example is when "syndicating" deals, or JV, or any partnership. Most investors putting together a deal want to get their initial investment in appraisal costs, earnest money, inspection fees, etc out in cash when the transaction closes. I instead take an additional ownership interest in the subject asset - at 50% of greater valuation than the money I invested. Passive investors in the deal love this - shows my commitment and confidence in the deal (which is true), and aligns our interest.
Third example - I’m always willing to entertain a trade of properties, not for 1031 exchange benefits (which I believe is overhyped and over rated), but as a method for adding to my net worth - IF the exchange puts me in a higher wealth position. Surprisingly, people will do exchanges that DECREASE their own net worth IF the trade enables them to accomplish a more important goal.
2. Buy properties or notes FOR CASH where the use of cash enables you to obtain a LARGE discount. While these deals are somewhat rare, they do exist. Here are two actual examples.
25 years ago I was offered an automotive repair facility that was an asset in bankruptcy court. The kicker was that there was an environmental concern. The court was suggesting a price of $300,000, and the trustee had no interested buyers. I obtained a few quotes from licensed remediation companies and the quotes ranged from a high of $55,000 to a low of $3,000. I visited the state environmental branch office, and in speaking with the chief engineer found out that the firm with the low quote was highly recommended. I made an offer for the property, which the court countered at a small increase, and ended up buying the property for $115,000. No financing was available because of the environmental situation which eliminated all the “wanna bes” with no capital; eliminated those who had assets but no liquidity, eliminated those that had credit but couldn’t use it on a property that was not “financeable”. I remediated the property for$3,000, rented it out for $3500 per month while waiting for a certificate attesting to no environmental hazard, and sold it to the tenant for $325,000.
Another example. I was offered 50% ownership in an LLC which owned a single property worth about $250k. The owner needed to sell fast - like that day. He was asking $100k. I told him to get realistic. He said $50k. My response was "I said realistic, not optimistic." He said 25 k. I knew his "partner" the owner of the other 50%, was well known to be difficult to deal with. Further, I had dealt with this seller before, and he screwed me for about $10k on a deal, so I was not about to help in out with a short term loan as I would have anyone else. I offered $5k. We "settled" on $10k. Now here's where it get weird LOL. The next day I visited the other 50% owner at his office. He couldn't believe that his "partner" had not offered the 50% to him - although they had not been on speaking terms for 2 years. I told the partners that he and I had done three or four deals in the past, all profitable for both of us. It would cost us too much money in opportunity cost to end up never doing any more deals because of a partnership despite. Further, since we both had capital, getting attorneys involved was the same as each of us taking $30k and flushing it down the toilet. I further told him a partnership could never work because he's an a - hole. So, here's the solution. I buy him out for $100k - or he buys me out for $100k. After much hemming, hawing, crying, anger, etc. he said he'd buy me out. Writes a check for $100k on the spot. I know this guys checks are as good as gold, so I accept it, sign the sale agreement we drew up right there, and made my biggest single percentage profit in one day.
