All Forum Posts by: John Nachtigall

For sure.   

Its a funny story.  I was actually driving for apples, you know, just looking for run down apple trees, pies in the windows, all the usual signs.   Then a guy with a bag of oranges ran out in front of me and I hit him.   He seemed desperate for me to call 911 so I told him I can solve his problem if he considers signing a contract for his oranges with wrap around seller financing with a lease option.   He managed to sign before he passed out.   It was a win-win for everyone.

Nothing prevents owners from selling as-is on the MLS right now. And even if they could not, that does not excuse unethical or illegal behavior. Lots of people want to buy drugs also, just because there is a demand does not make it ok.

It is not at all how grocery stores or car dealers work.   The last time I was at a grocery store I did not buy an interest in the contract to purchase an orange.   I bought the orange, which had been bought by the store, who had bought it from a dealer, who bought it from a grower.  

I have yet to see a wholesaler advertise the contract not the house.   "For sale, a 10 page contract with excellent font on 10 pound paper, $5000 or best offer"

And that is not even getting into the really despicable behavior like not having an ability to close but signing the contract anyway or purposely taking advantage of confused/uneducated sellers.  

Is it possible to legally and ethically wholesale a house, I suppose, but it is rare enough that no one feels bad painting the entire practice with a broad brush of illegal and unethical.  

My prediction is that neither will get anything and the house will fall further into disrepair eventually being taken by the city because the bank does not want it.  The bank who will confiscate the insurance money to get something back.  

The seller has control over the insurance funds but has no motivation to fix the house, he did not want it anymore (hence the sub-to).   He is thinking if he can walk away with the pot of money he would be just fine.   I assume Citi is watching it closely to make sure he cant just withdraw it.  He is on the hook for a mortgage to a broken house he does not even own.   No reason for him to be happy or cooperative.  

The buyer has the deed but no money.   Even if he had the money he has defaulted on the contract so the buyer can take it back anyway.   So there is no incentive for him to repair the house because if he does the seller takes it back for default.  

I am guessing no one told the bank about all this "creativity" so they will be super happy to find out for sure.  Depending on if the house is worth repairing they can trigger the due on sale clause, take it and the insurance money and try to recoup some costs.  Otherwise they can write it off (internally) and just let the house rot.   Since the buyer still "owns" it he gets all the city fines and such.  If he is smart he will sign back the deed to the seller and walk away quickly.  

No one (expect possibly the bank) is getting a lawyer because they cost money and because no one has clean hands.  Explaining to the judge how you moved the deed but not the mortgage but is all perfectly legal because you had a new contract that is now defaulted and insurance by the non-owning party would be fun.    People can threaten all they want but civil cases take years to resolve and lawyers cost $500 an hour.  If either the buyer or seller had that kind of cash they would not be in this situation.  

I also predict this will not be the case study that is used in the future to explain how awesome "Subject-To" financing is.    Remember, it is totally possible to own a house without having any money invested or savings of any kind.  Good luck with the mess.  

It is Stocks, and if you add in 401k or IRA it laps the field

The S&P 500 has averaged 10% yearly return (dividends reinvested) for 100+ years.   In my Schwab account I can buy an index fund with no trading fees and a 0.04% fee in any denomination I choose above $100.   It requires no effort, no education, no research, no team, and I don't have to pay taxes until I sell it.   It is 100% liquid, I can sell at any time.   I can add to it at any time in any denomination including automatic deposit.  It requires no additional capital, it carries no liability, and requires no counterparty like a tenet or a buyer/seller.  Add in the 401k with a company match and tax advantages and the you cant beat the return with any other investment.   Index Fund + Time = Guaranteed Success

Real estate (direct ownership) has many advantages like cash flow, taxes, and appreciation.   However the effort required is miles above stocks.  Take all the items above that are not required for an index fund and that is real estate.  The learning curve is brutal and it is easy to lose everything.   Real estate is also a fixed commodity, you are competing against other people to buy it, so you have to be smarter than those people.  In the end, you can get richer rewards than stocks, but at much higher risk and requiring much higher investment in time, money, and knowledge.  

Now, add in the average American.  As of Jan 2021 61% can't handle a $1000 expense without a credit card.  Little to no financial training.  The vast majority have absolutely no way to buy, maintain, or understand real estate.

I would go as far as saying that to suggest anything other than stocks to most Americans is financial malpractice.  For the vast vast majority of people stocks are the only logical choice.  

Hi Caio, I love your enthusiasm. This is nothing wrong with wanting to change your life and the world for the better. But as a trained engineer, I think you need to fall back on your training with regard to looking at the facts. If people could spend 20 hours a week getting infinite return on BRRRR properties everyone would be doing it. Some thoughts on just the 5 year part of your plan

- The median single family house price in Danbury is 450k. But lets assume for the moment you find properties in the 250k range. You have to by definition, buy with cash because anything you BRRRRR is not financeable. You also need the cost of repair, holding, insurance, etc. So you dont need 40k, you need more like 10x that amount to BRRRR in your area.

- But wait, you say, you will use hard money.   Someone with no relationship to you will give a 25 year old with zero experience 400k or more in cash.   Totally believable.   

- Go to a different area?   Of course now the renovation will be managed remotely and you will need to spend 10% on local property management.   So you have zero experience and you are going to increase the difficulty and do it remotely.  

- 15 rentals means 15 tenet families, with all the associated problems.   And remember you bought cheaper run-down properties in less affluent areas, so the tenets are C-D at best.  Chasing rent, fights, evictions, property damage, etc.   All in 20-30 hours a week

- Oh and you have to source 15 properties.  But they cant be any properties, they need to be distressed owners willing to sell at 70% of current value minus repair costs.   So you have to compete against every other wholesaler in the area for deals.   Every other person who wants to earn infinite returns working 20 hours a week.  So to get 15 properties you need to generate a list of about 1500.   All distressed, all off market.   

Can it be done, absolutely.   The podcasts and books have dozens of people who talk about going from 0 to 100 doors in a year.   Financial freedom.  Dont be a W2 wage slave.   You bet, it can be done.    That, however, is just selection bias.   You don't hear about the tens of thousands of people who tried and failed.   If I asked a room of NBA players if "following your dream" is worth it, they would all say yes.   But what if I asked a room full of homeless?   It can be done, but can you do it?

You will do what you want Caio and that is a good thing.  I wish you all the luck in the world.  I would only caution you that putting a plan into a spreadsheet is much different than executing it in real life.   Good Luck

As a fellow engineer I believe that if you simply do the math, a 401k is a much better investment, especially if you have a company match.

70,000 a year salary

401k:  contribute 6% with a 3% match   Invest in SP500 which has a 10% return (dividends reinvested) for more than 100 years with no effort whatsover.   Grows tax free.   Assume your salary grows at 5% per year (which is low my salary, as an engineer, has grown 10x in 25 years it comes out to 10% a year annually).  Feel free to plug it into the calculator below but it comes out to just a little over 5 million in 40 years, with zero effort and almost no risk.  

https://www.aarp.org/work/reti...

You are not going to get that in real estate with zero effort. BRRRR requires you to buy properties at 60-70% of actual value. So you have to make 40-50 offers to get 1 acceptance. You have to find those distressed sellers. You have to fix up the properties, be a landlord, have excellent credit to get refinanced, etc.

My advice to you is this. Concentrate on your career, max out your 401k and do a good job to maximize your salary and bonus for the next 10-15 years. That will put the most money in your pocket. Put an extra 5% in your "BRRRR" fund every month and by year 10 you will have 100,000+ to invest in a BRRRR with excellent credit and a W2 job that makes financing a breeze. Then if you want to become the Real Estate Mogul you do it from a position of strength. But per your original question, you cant beat compounding tax free growth at 10% a year with zero effort. 401k is the clear winner

It is happening quite a bit, one example

https://www.star-telegram.com/...

Put "Builder Cancels Contract" in a Google News Search and you will see many articles on this.   

from the article

The clause is known as a “termination for convenience” — and it’s a tool in the contract that allows the builder to walk away from the deal, but offers no such exit ramp for the buyer. Real estate experts said such language is often included in contracts drawn up by home builders, and that buyers should generally try to avoid signing papers with such language.

Check the contract, but considering they wrote it you probably have little recourse beyond getting your deposit back.  

Funny this comes up.  I just had a tree limb fall and take out the power line to an out of state rental I own this week.   Total cost to repair was $615 including fixing the box and house etc.  PM messaged me as it was over $300 but since it was an emergency they did not per-ask for approval (thankfully).   I was grateful they got it all worked out.  I didn't even bother to ask who owned the tree because it does not matter.   In fact what I asked is if I needed to pay to have the tree trimmed to prevent further damage.  

Scenario 1:  If the cost is so high as to matter (tree falls on house), then I just pay the deductible and let insurance figure it out.   That is why I pay for insurance, high cost, low occurrence events.  

Scenario 2:  If the cost is nominal then you just eat the cost.   Ownership has responsibilities and life is unfair.   Sometimes you have to pay for things you should not.  Your scenario is this case (as is mine).  You are not going to sue the neighbor, cost prohibitive.   You are not going to threaten, you have no leverage.   You are not going to sweet talk them, you are remote.   Just accept that you take the "L" on this one.  

In fact, the real problem here is that the fence was left damaged for a year.  I am glad to see you have changed PMs, that should really bother you, that your property was damaged and neglected for a year.  I wish you good luck.  

A few things I would mention, some which have already been said

1. If you are going to sell something would you sell it in the centralized marketplace (MLS) or some stall miles from everyone else with no traffic (FSBO). If you want maximum price -> Maximum buyers -> Maximum exposure -> central marketplace which for houses is the MLS

2.  Selling a house is a regulated activity.   Failure to follow those regulations can expose you to tens to hundreds of thousands of dollars in legal exposure, both civil and criminal.   Do they know not to ask the buyers how many kids they have?   While the occurrence is low the severity is very high.   The risk benefit is not worth it.   

3.  I don't know your parents, but if they are not skilled negotiators they will not get the highest price.   This is not a friendly transaction, this is business

4.  They will still have to pay a 3% buyers agent commission or agents simply wont show the house to buyers.

So this is the simple math. They save the 3% sellers agent commission. In exchange they do all the marketing and paperwork for the sale, take all the liability, are responsible for negotiation, and have to price the house properly (market knowledge). And lets not forget financing and having a independent person willing to tell you how to stage the house. Oh and they will be constantly cold-called by agents and wholesalers looking to take advantage of them because it is FSBO.

Let a professional do all that cr*p and sit back and collect the money.