All Forum Posts by: Michael Evans

You perform what is called a "Return on Equity" analysis, which is easy to do:

Return on Equity = Annual Net Income / Equity

So if you clear $700/month in rental income after expenses, then Annual Net Income is $8.400.  I don't know what the value of houses are where you live, but if you have $100K in equity (taking into consideration selling costs to get access to your equity), the you r Return on Equity would be $8,400 / $100,000 = 8.4%.  Then you have to ask yourself if you can make more on your money in another investment.

Hopes this helps.  God Bless You!

A couple of suggestions:

• Roll your IRA into a Self-Directed IRA and talk to your custodian about how you can use that money. You can always lend it to a 3rd party company with which you have an "arm's length" relationship (own less than 50% of the 3rd party). So you can establish an LLC with two or three people you trust to where you and at least one other person control at least 51% of the company. You should talk to an attorney about how to set this up, but it's doable and legal.
• Once you loan the money to the 3rd party company, use that company to fund and manage your real estate investments.  I would add my tax return money to this company.
• Develop your financial goals.  Develop 1-year, 5- year and 10-year goals.,  Based on your 1-year goal, develop objectives that are measurable and have deadlines.  Then develop your strategies and tactics to achieve your objectives.

There's more I recommend that include developing an investment model based on your risk tolerance, money available to invest, and required ROI, but I don't have time to go into that level of detail here. Look for a future discussion I will start about the topic, or email directly for more information.

God Bless You!

You didn't read the post right.  The total investment amount (out-of-pocket) is $5,432 with a return of $1,762, which equals a cash-on-cash ROI of 32.43%.  The model is also based on the fact that you are purchasing the house in the middle phase of a tract, so that when your house is completed, the home builder is still selling houses.  You simply price your house at the then current price that the home builder is selling houses.  The then current market price has to be at your predetermined price point, or you walk away form the deal.

As far as home builders requiring only $5K or less for earnest money, this is where you need to do your research.  KB Homes requires only $3,500 in Lancaster, CA for any of the houses, which sell in the low $200K - $300K range.  KB Homes won't even pull the permits on the property until they have a signed purchase agreement and earnest money.  Because I've done this personally and for other people, I know the ins and outs of the deal.  I also know which tracts to purchase properties in.  I've developed a system.  Anyone can try to do this on your own, but why?  You can take the risk and try to get a 100% return in 4-6 months, or you can go with me and my proven system to get a 30%+ return with no work involved.  It's up to you.

The CA market is heating up again.  One home builder told me they have increased their prices by $90K in the last 9 months, or an average of $10K/month on a $300K base price.  That's 3.3% per month or 40% per year.  Now that rate is not sustainable, but 18% (1.5%) is in the short term (12-24 months).  When people buy houses, the price doesn't matter.  What matters is how much money do I have to pay out to close the deal (down payment and closing costs) and how much do I have to pay per month.

Also, there is nothing illegal or unethical about the approach I use, and it definitely is not fraud.  You need to read and understand the definition of fraud before you go around making uninformed claims, as you only make yourself look ignorant.  Fraud is lying with intent to deceive.  There is nothing fraudulent about entering into a purchase agreement to buy a property in the future, and then changing your mind when the house construction is completed.  Deals fall out of escrow all the time for a variety of reasons.  That's the reason for the earnest money deposit in the first place.  Read the purchase contract!

We all have different risks tolerances and comfort levels.  Most people are not comfortable with things they don't understand.  This is a very unique investment model that most real estate investors don't understand.  But if you are an investor that deals with stock options, then you understand that this is taking the stock option concept of purchasing a "call option" with the property being the underlining asset.

I am available to answer any other questions you may have about this investment model and I thank you for the feedback.

God Bless You! 

Connect with a good Title Company so you run free title profiles that will have the property owner information, as well as property tax information and lien information.  The title profile is essential in determining if a deal is worth doing or not.

God Bless You!

You're a real estate investor. Your deals should be based on the real estate property, not your personal credit, so start thinking that way. It's all about the numbers of the deal: does the deal you have in mind either create enough cashflow to cover the monthly costs (PITI + maintenance + property management for buy and hold) or does it produce profit for a buy low, sell high flip. I have several investment models that use 100%+ finance (1st mortgage 70%- 96.5% LTV and the 2nd mortgage is the balance + closing costs). The most important factor is the deal, not the person. Email me directly for more information. Find the deal and let's make some money!

God Bless You!

@Hattie D gives some great advice about the use of Land Trusts and LLC. Every piece of property should be in it's own Land Trust and you should have an LLC for each type of asset class you are investing (this goes to money management, which is a subject beyond this post). You want each investment to be independent of each other so that if one goes south, it goes south by itself and doesn't;'t affect the others. Some call this diversification.

Ranchinskiy Vasily: there are many private money banks/opportunities for investors to pool their money to lend to investors (whether they be real estate investors, stock market investors or business investors).  We run a private money investment service, so if you're interested in the types of deals we invest in, send me a private message.

God Bless You!

I want to get some feedback on an investment strategy I used in 2003-2005 that I call the "pre-construction flip".  It works like this:

• Identify high appreciating markets (greater than 12% annual)
• Identify home builders who don't care if an investor purchases and immediately resells a property in their housing tract.
• Enter into a purchase contract with the builder to buy a house that has not yet been constructed with an "earnest money deposit", usually $1,500 - $3,000.
• Qualify with the home builders preferred lender.
• Wait for the house to be built.
• Upon completion, if the current market value of the house (as determined by the market price that the builder is selling current homes) is at a minimum level (5% higher than your purchase price), then complete the purchase agreement.  Otherwise don't complete the agreement and lose the earnest money deposit.
• Upon close of escrow, immediately list the new house FSBO at the same price that the builder is selling their homes.
• Secure a buyer within 2 weeks and close within 30 days.
• Make profit based on the difference between the purchase costs and the selling proceeds over a 4-6 month period.

Here are some real-life numbers for 2014:

• Purchase price: $300K
• 1st Mortgage = LTV: 96.5% FHA 3.5% down @ 4.5% for 30 years fixed = $289,500
• Upfront points 1%
• Closing Costs = $10,402
• Total Cash Investment = $20,902 (down payment + closing costs)
• 2nd mortgage = $20,902 (equity partner) LTV: 3.5% with $0 down @ 10% interest-only
• 2nd mortgage holding costs = 6 months @ $174/month = $1,045
• Reserves = 2 months of 1st and 2nd mortgage costs = $4,387
• Total Investment = holding costs + reserves = $5,432
• Annual Appreciation = 18% (1.5% per month) for 4 months
• Future Market Value = $318K
• Sales Commissions = $0 (FSBO)
• Sales closing costs = 1.5% -= $4,770 added to sales price
• Final Sales Price = $322,770
• Less closing costs = -$4,770
• Less Loan Payoffs: -$310,402
• Net Proceeds from Sale: $7,598
• Less Total Investment: -$5,432
• Less Deal Management Fee: -$404 (this is my fee for putting this all together)
• Net Profit: $1,762
• Cash on Cash ROI: 32.43%
• Annualized ROI: 97.30%

Please critique the numbers, the assumptions and the requirements. I did three deals like this in 2004-2005 when money was cheaper with less regulations.  We turned $10K into $25K, $12K into $50K and $7K into $180K.  I'm not looking to make a homerun off each deal, just a bunch a singles off each and every deal.  Tell me what you think.

God Bless You!

I would recommend that you first determine what is each person's role in the deal and what are they brining to the deal.  If one person guarantees the loan, then there needs to be a separate agreement between the parties (outside of the loan itself) detailing who is responsible for guaranteeing the payment of the loan and what happens if the loan is not satisfied.  I prefer to not personally guarantee loans, but instead to use hard money or private money (in the business' name) and use partner equity for the balance of the purchase.  I am in the process of structuring several of these types of loan, so email me if you have specific questions.

God Bless You!

Welcome.  You'll find a wealth of information about real estate investing here at BP.  You get out of it what you put into it.

God Bless You!

Good advice.  I was listening to an older BP podcast about an investor in Texas who sells mainly to Latino families who have the cash and will fix up the property themselves.  He stated that about 90% of his properties are sold this way.  It's all about knowing your market.

God Bless You!