All Forum Posts by: Michael Rossi

I would do both. After all, what is a better use of my time than finding deals? If a great realtor can do that, then I need her working for me. BTW, I went through two other realtors before I found this one. She was 20 years old; fresh out of realtor school; and hungry to do deals.

Mike

A lot of the information hyped by some of the popular gurus is nonsense.

One guru says "the less I do, the more I make". I'm sure that he says this because he realizes people want something for nothing. However, that concept is simply nonsense. "The less I do, the more I make" - RIDICULOUS! IF you believe that, try doing nothing and see how much money pours in.

Many other gurus teach that cash flow is determined by subtracting taxes, insurance, management, maintenance and vacancy allowance from gross rents. This is also RIDICULOUS! If you build a rental property business on this cash flow equation, you will soon be broke and your properties foreclosed upon! Yet, I've heard and seen this from the "gurus" over and over.

I could go on and on, but my point is that just because some "guru" says it, does not make it true. In fact, the gurus are in business to sell expensive courses and bootcamps. That is often in conflict with telling the entire truth, which is not as attractive as the hype.

Mike

My motivation was to build a rental property business that would allow me to have a semi-passive cash flow that would support my lifestyle and rapidly build wealth for retirement.

With rentals, I "make money" at least 5 ways:

1. Cash Flow
2. Equity at Closing (from buying at a discount)
3. Appreciation
4. Paydown of Principal (thanks to the tenants)
5. Depreciation and other tax benefits (thanks to uncle sam)

Mike

In my opinion, the flipping fad is OVER! With a glut of inventory already on the market in most areas; the subprime fiasco causing lending practices to tighten (thereby shutting a lot of potential buyers out of the market); a looming avalanche of foreclosures; and a pending recession; who are you going to flip to?

On the other hand, there will be at least a short term upturn in the rental business as both the quantity and quality of tenants increases.

Mike

I would certainly not rule out dealing with a realtor. I have a realtor that works for me. She networks with other realtors and keeps one ear to the ground. When a great deal comes along, she calls me and I buy it. I bought an $81,000 duplex through my realtor for $11,000. I bought a small 2 br house with a FMV of $52,000 for $17,500 through my realtor. I bought a BEAUTIFUL doublewide (like new condition) for $10,000 through my realtor. Etc, etc, etc.

While I agree that there are great deals to be had dealing directly with desperate sellers, there are also great deals available through a good realtor.

Mike

SoBeRei,

Yes, plugging in numbers that add up to 50% for operating expenses would give you an accurate cash flow, but why do that? Cash flow is defined as gross rents - operating expenses - mortgage payment (P & I). So, I'm not sure that there is any benefit to plugging numbers into a calculator when you could simply use the formula above. Seems like a waste of time to me.

Mike

Vic3001,

I am not familiar with this product, but most cash flow analyzers will not give you an accurate analysis because they don't include all the expenses that you incur. Furthermore, even if they do include all the items, it is impossible to predict which expenses a given property will have in a given year.

For example, how many evictions will your rental have this year? How much damage will the tenant do to your rental this year? Will you be sued over something that happens at your property this year? Etc, etc, etc.

Throughout the United States, operating expenses (including capital expenses) run 45% to 50% of gross rents. With this knowledge, you can do a better cash flow analysis than trying to plug in all the numbers.

Good Luck,

Mike

Let's say that you find a good deal and put it under contract. You find a buyer almost immediately. Just before closing, you find out that he doesn't have the money and the deal falls through. Would you ever deal with him again? I know I wouldn't!

What do you think is going to happen to you when you sign contracts with a few sellers and YOU weasel out (because your buyer bailed out)?

I NEVER use weasel clauses in my contracts. If your buyer can't close at the last minute (which happens OFTEN), then you need to be prepared to close yourself. Otherwise, your reputation and your new business will be ruined.

I would never tell a seller that I had cash if I didn't.

Mike

Vacman,

I don't consider buying a property at a 35% discount to be a steal. Quite the contrary, I won't even consider purchasing a property unless it is at least 30% below market value. I consider buying a property for 20% of its market value (80% below market) to be a steal!

I don't make a bunch of lowball offers on properties being offered at retail. That's ridiculous, although I know that some of the gurus promote this silly idea.

In fact, the deals usually come to me. Just this afternoon, I got a call from someone wanting to sell their house. I didn't ask any details about the house (I don't care) - I simply asked how much he wanted for the house and where it was located. He wanted $59,000! I told him that I didn't pay more than $30,000 for rentals in that area. I'm certainly not wasting my time looking at or talking about a property that is priced at twice what I would pay.

My realtor knows my purchase criteria. She knows that when she brings me a deal that meets my criteria, I WILL buy it immediately. Therefore, when she finds out about someone that is desperate to sell, she calls me. I will immediately go look at it and put a contract on it (if it is a deal). Then, I WILL close on it quickly.

Just yesterday, I was at the hardware store. My phone rang and it was a potential tenant. I told the potential tenant my screening criteria during the call. When I hung up, the clerk said "I wish I had done that." I asked if he had rentals and he had two. One of the tenants was causing him great problems. I invited this person to our local REIA meeting. Situations exactly like this one often lead to deals. I have never gotten a deal looking at internet sites. You've got to get out there and meet people if you want the great deals.

Many of the great deals do have problems. I bought a duplex that was a REO. I paid $11,000 for the property (after making this offer every other month for a year to the bank). The property was a crack house that had been condemned by the city as a health hazard. There were several 5-gallon buckets of human feces in the house.

I cleaned up the considerable mess (3 LARGE dumpsters) and spent about $25,000 repairing the property. That gave me a beautiful duplex worth $81,000 for about $36,000. This is a typical deal.

Not for me. I use most of the positive cash flow to eat, pay my bills, pay my mortgage, go camping, etc. I do use some of it for rehab costs on new units, but I buy all of my properties without using my own cash.

I make my money when I buy. Needless to say, I like any appreciation that I get, but I just consider it icing on the cake!

Good Luck,

Mike

Ryan,

It doesn't sound to me like the other investor is too serious about buying it. You and I both know that serious investors don't take a week to put an offer on a good deal.

However, as you said in your post, I wouldn't want to cause problems with the other investor (professional courtesy). I would just call the other investor and tell her that you were contacted by a realtor. I'd ask her if she is going to take the deal and if not, you are.

Mike