All Forum Posts by: Tom Goans

Prior to jumping into investing in real estate, or anything, I recommend a lot of education.

Be the smartest person in the room.

I recommend the books and audio tapes produced by Jimmy Napier - jimmynapier.com. This is an old-time investor that shares his REAL experiences and lessons learned.

I am a third generation real estate investor. Both my father and I have followed Jimmy for more than 20 years. Jimmy is retired now, but the information he provides is timeless. I found the 70 Cash Flow Ideas by Jimmy Napier to be very excellent and full of ideas and tips. The Power of Negotiating by Jimmy Napier is another excellent listen. This one is critical for all aspects of business and life.

Jimmy is the person who got both my father and I interested in investing in mobile homes. Mobile homes are an excellent return on the investment and a very excellent place to start investing in real estate. The amount of money required is low and there are more buyers for Chevys than Caddies. Thus, you will have a larger rental pool and more qualified buyers. I highly recommend buying homes in a mobile home park. Many parks have several investors who own numerous homes. From time-to-time, they sell one or more and offer seller financing. The mobile home park manager will know the scoop on everything.

To give you an example, the last mobile home I bought was a foreclosed home in the same park where I owned 20 other homes. The park manager called me to let me know the finance company was interested in selling the 2-year old 3 bedroom 2 bath home. I bought the home for $8,500 cash, cleaned the carpet, painted some walls (a rule of mine every time I re-rent or sell a home to give it a fresh smell) and about 2 weeks later the home rented for $650 per month. Calculate the math for how quickly my capital investment was returned and the return on the investment. Almost unbeatable.

One of my mentors, a highly succesful real estate investor and entrepreneur, once suggested to me that if you have $50,000 on hand, invest only $25,000. In other words, invest only half of what you can comfortably afford. There are always unexpected surprises. For example, I always deduct 40 percent from the estimated potential rental income to allow for maintenance, repairs, and vacancies.

Yes, when my father considers an investment, he first uses simple math to determine if it will provide a minimum of 4 to 1 return the very first year. He once rejected doing a deal with me that would have given a 3 to 1 return in less than 60 days.

The investments I have been making since 2001 give me 8-10 to 1. For more than 20 years, most of my father’s investments are like this ... buy a large chunk of land for $100 per acre, subdivide it into 40 acre tracts (extremely low development and holding costs with No Babysitting) and then sell the 40 acres for $25,000 ... this is $625 per acre.

My father generates his sales leads from cheap print advertising and the Internet. 100 percent of my sales leads come from my websites. CHEAP.

Our work is easy and requires little time. This brings me back to 2 things my father always told me ...

1) K.I.S.S.

2) If it is not lucrative, easy, and fun, just don’t do it.

These have been excellent and successful philosophies. He owes no one and has not for many, many years. Plus, he has a net monthly cash flow greater than the average household annual gross income. All his money comes from real estate investments. The monthly income is derived from collecting loan payments. His big tasks each day are scanning checks received the previous day, entering them, filling out a deposit slip, ridding one of his motorcycles to the bank to deposit the payments, then riding around for pleasure.

One of his favorite books is “The Millionaire Next Door”. I highly recommend the book.

I am a 3rd generation real estate investor, developer, property manager, and financier with almost 50 years of personal experience. My history includes rural residential and resort developments, including being part owner in a ski resort.

My primary focus has been on real estate finance (originating, buying, selling, managing), rural and resort developments, residential communities, and income property management (my own).

My investment backyards have included Colorado and Texas.

I am very interested in developing affordable residential communities, especially ones for seniors and retired military families and owning mobile homes and mobile home parks.

If I may offer another thought, the old pros and my almost 50 years of experience have taught me that if a “deal” relies upon tax benefits or structuring for the best tax savings for it to be considered a good “deal”, then it is not a “deal” at all. The old pros and I will not even consider an investment unless it has a minimum fast return of capital and very large return on investment risk ... this includes any loans or anticipated debt.

Simple grade school math is what we use for determining if a deal is an investment.

For example, my father will not consider a deal unless it has an annual 4 to 1 ratio ($4 for every $1 invested). Why should he. For decades, his return has been closer to 8 to 1 and greater. I have some investments that provide a 10 to 1 return.

Another tip that my father also drilled into me is there are more buyers for Chevys than Caddies. In all economies, there are more buyers for Chevys. Therefore, your investments are less affected by the economic us and downs. Plus, since the capital investment is returned so quickly, and in many instances, you own the property free and clear, you are not sweating bullets and losing sleep. You are still enjoying life.

K.I.S.S.

Consider this, a very large and prestigious hotel in my area (a former Crowne Plaza Hotel) recently sold for $14 million. The buyer bought the hotel from the bank. The previous owner bought the hotel in 2007 for $30.8 million. The new owner is making a living off other’s mistakes. This is the 9th hotel property they have bought in during the past 5 years. The surrounding neighborhood is excellent. In fact, it is within a half mile of the large convention center and many restaurants and shopping centers.

Think of it this way, the previous owner put his spin on the numbers and manufactured a positive result. This was sold to a bank. But, it failed. I would bet blue-sky and “massaging the numbers” were used instead of simple grade school math and the goal of a true return on the risk.

While there have been many books and seminars on real estate investment using many tricks and computations to try to turn nothing into something, including getting money from credit card cash advance or excessive financing, my almost 50 years of experience always reverts back to K.I.S.S.

Have you ever been around an old-time investor? They never refer to all the numbers and computations you used when analyzing this particular investment.

I am a third generation real estate investor with almost 50 years of personal experience. Neither my grandfather or father ever use those computations, yet, they were extremely successful.

One thing my family, and other old-time investors taught me over they years is to take the potential gross cash flow and reduce it by 40 percent - 20 percent for maintenance and repairs and 20 percent for vacancies. If the numbers still suggest an acceptable return on the risk (this includes all debt liabilities), then analyze the costs and liabilities, including deferred maintenance and repairs. If the numbers are still good, analyze the community and a large scope of the neighborhood. Realistically determine the future as you own this property. Many times, unexpected things completely change an investment, especially rental. If there are few employment opportunities and one large employer, what happens to the area, jobs opportunity, and the values of ALL real estate in that area should the one employer leave the area?

The numbers you quoted do not factor in this type of extremely critical information.

For example, I know of an area of in the second largest city in the state that was booming during the 1980s. In come the “pros” to build large shopping centers. Jobs did not materialize, the income of the people living in the area became some of the poorest in the city. Several years later, the pros went broke. The shopping centers lost tenants and then the shopping centers sold at foreclosure auction. A similar thing is currently happening in a neighborhood that was prosperous and desirable during the 1970s and early 1980s. Now the neighborhood is in great decline, the people living in the area are aging with very limited income, schools are closing, and now the huge shopping centers are sitting empty. Apartment complexes are filled with very low-income families and huge drug and crime problems. This once beacon of a neighborhood is now turning into the place where there are many crimes on a daily basis.

A prudent investor looks beyond the numbers when considering an investment. Blue sky will turn an investor into an employee.

A great book on how and why to use corporations is INC AND GROW RICH by Cheri S. Hill, Diane Kennedy, C.W. Allen. It is simple and gives examples.

Dealer Status can be determined by the number of transactions in a year. Some states also have laws defining dealer status. This also affects state income tax laws for your consideration.

At last check, the Federal government considers 25 or more transactions in a single year classifieds you as a dealer.

At this point, both the state and federal government may require you to register as a dealer. There are penalties if you do not. Some tax advisors are unaware or fail to consider this when giving advice. I always considered a tax attorney much more quailifed than a CPA. At least you have his tail on the line with you.

They also know many attempt to get around this by having multiple companies. Be careful if you have multiple entities owned or controlled by a single entity. You may be raising red flags without your knowledge.

This is not their first rodeo.

There are more great deals available than you have money or time. Seek these and run from this one. As Jon stated, you may be considering a very bad deal with many pitfalls.

What you are considering is very high risk.

Advice from a third generation real estate developer and investor with almost 50 years of personal experience. If you need to ask these questions, you should not pursue any improvements on these properties. At the minimum, seek an experience partner. It is far better to share some profit than to endure a total loss.

Of further consideration, if the investments were really great deals, experienced investors be pursuing the investments.

For example, I once considered buying foreclosures at auction. As an experienced investor, I have a spreadsheet that helps me to analyze the numbers and return on investment. I stopped pursuing this avenue of investments simply because there are many amatuers who do not understand the entire investment strategy. Many are the ones who are losing or lost the properties to foreclosure the past several years.

Seek an experienced partner, or work for a real estate investment company - an individual old-timer is best. They know the many pit falls and how to analyze investments.

I have found buying older mobile homes in mobile home parks an outstanding investment and return on the investment. For example, my last investment was $8500 for a 3bed 2bath. The home rented for $650 monthly. Do the math on when my capital investment was returned and the return on investment. Become friends with the park manager and you have a free person watching your property.

There are more buyers for Chevys than Caddies.

Some states and/or local agencies REQUIRE the locks be changed or re-keyed. To enhance your reputation and to reduce liability, it is always a terrific idea to change the locks or have all locks re-keyed no matter the laws. It is much cheaper than fighting a tenant legal issue.

One additional factor, who has a copy of the current key. You have absolutely no idea. It could be a past dating partner, repair person, the list is endless.

I have owned and managed rental property since the 1960s.