All Forum Posts by: Lee Ali

Norm,

Use this for Real Estate Terminology http://www.realestatewords.com/

When you want to pool funds, manage a fund for investors, aggressively market your properties for funding, dealing with out of state private lenders, etc., then you file what is called Regulation D.

There are three types:

504 - Up to $1,000,000 in a 12 month period.
505 - Up to $5,000,000 in a 12 month period.
506 - Any amount.

Norm,

Starting small is fine but you may find that starting with apartment complexes may be a better option with little or no money compared to 1-4 family.

Reason...

A $300,000 2-3 family purchase would cost you $75,000 - $90,000 in down payment at 70%-52% LTV plus closing costs.

With HUD 223F program, you may be able to get a million dollar property with 7.5% down, and nothing down if your star align with the HUD gods. :)

What is needed to qualify for Private Money?

All it needs is that your potential lenders know you, like you and trust you.

Private investors are primarily looking for security of principal and hedge against inflation.

You can start small, if you want. Start networking. 75%-80% of the money will come from those who know you already, or know someone you know. Forget about cold prospecting until you want to go Reg D where you would be dealing with a different type of crowd.

It may take several months before your prospects can warm up to investing with you. Keep in touch with them and keep feeding them deals.

You are NOT borrowing money. You are doing them a favor to "allow" you to invest with you.

Will, what is your background (education/work experience/etc.) before you came into real estate investing in 2004?

Also, how did you fund few of your early deals?

The reason I ask is that you have a way of responding to my posts which I find very "interesting" to say the least.

I just want to make sure that I know where you are coming from before I respond to you.

Thanks
Lee

Banks have led a great many people to believe that the mortgage mess exists because too many loans were given at or around 100% LTV.

That is hogwash spread by banks because they don't have access to the free Wall Street money they used to have access with.

Wall Street got a hold of $27 Trillion somehow. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a0jln3.CSS6c

They had to spend it. The equity "supply" was manufactured because of this once-in-a-life-time "demand" from foreign money.

Residential sell based on DTI (debt to income) and commercial sell based on NOI (Net Operating Income), CAP Rate and DSCR (Debt Service Coverage Ratio) which are three very inter-related numbers.

Many residential underwriters approved loans at DTIs of 60%, 70% and I have heard over 100%.

Commercial lenders approved loans at DSCRs of less than 1.2 (Income 20% above mortgage payments), 1.1 (Income 10% above mortgage payments) and even 0.95 (Income 5% below mortgage payments).

This is how the mess was created and NOT because of lack of down payments.

The new owner has got to have money in his/her hand to take care of emergencies; whether it is furnace blowing up or losing job. "Donating" 10% or 20% to sellers does not do anyone any good.

Not a whole lot of people get this at the core level.

Don't start with expensive marketing. Start with Craigslist, local newspaper, and even MLS. You are looking for a motivate seller NOT a seller who thinks that you need to buy more than he needs to sell.

For even real estate agents, off line marketing effectiveness has reduced by almost half (from 27% in 2007 to 15% in 2008), and even "For Sale" signs have lost their effectiveness by 2/3 (6% in 2007to 2% in 2008). Source: California Association of Realtors.

To get started, I suggest my new students to study:

- Rich Dad Poor Dad series. The first three books. $30 on Amazon.com

- Intelligent Investor by Benjamin Graham. Chapters 1, 8 and 20. $20 on Amazon.com

- Carleton Sheets. $60 on eBay.com

And depending on their personal style, maybe the following to boost their self esteem:

- Think and Grow Rich

- The Secret.

I make money when I teach them how to get Private Money. :)

Norm, finding a deal is a numbers game.

Cool. We have a point system at ActiveRain.com but it is not as nuanced as yours.

You may have to monitor this one carefully because people may just get too "spam flag happy"

You mark a post as spam; no gain unless removed by admin or mod. If removed: 20, if edited: 10

If they did then you will have to come up with negative marking if someone flags unnecessarily and increases staff's involvement with individual posts.

In any event. Great move.

Brilliant idea. Who came up with it?

I have not purchased a whole lot of REOs, Gary. However, I have purchased tens of foreclosures in the past few years.

That said, the last multifamily I purchased was a REO.

Why ask?

Mike, you seem to have more deals than dollars. So this is why I suggest.

Focus on lining up private money. Here are the five main sources of private money:

1. Cash under the mattress. [Don't seek it. Problems.]

2. Cash in checking/savings accounts. [Hard to get but depending on your "elevator speech", it is possible.]

3. IRA accounts. Most need to be transferred to Truly Self Directed Accounts. Guidant, Equit Trust, Pensco Trust, etc. [Easy to get since people are hurting there. You will have to educate them about moving the money from traditional custodians to self directed custodians. Offer 8%-10%]

4. Cash Values of life insurance policies. [Most people don't know about it. So you would be showing them a source which never existed for them. BankOnYourself.com has decent amount of information on it. I am working on a white paper as well. Must offer more than 8% because the insurance companies charge around 8% on the money.]

5. Seller financing. [Anything goes. 0% interest to market rate. Typically 2-5 years terms.]