All Forum Posts by: Tom McGiveron

oh i realized after i posted and read it this morning that i left out one important point in my last post.

the plans you make before you actually have a clue - are just plain silly.

mine were so silly, that everytime i think about them or find an old piece of paper with "plans" on them from about 8 months ago or so, i want to slap myself.

when i started out - my intentions were so over-the-top and grandiose in scheme, that at some point, i had to just say :protest:

i had to sloooowwww down - focus on information. people can call it analysis paralysis, but i recommend anyone, especially those that have absolutely no background in business or real estate - to take 6 to 9 months, joining a club, reading through the legal notices, classifieds, talking to realtors, calling local municipal offices, reading, listening to CD's, visiting websites, going to free business seminars and just learning the important stuff like
the lingo
title insurance and title - and how it works
appraisals
permits
code enforcement
contracting - the dark side of how it can eat all of your profits
commissions - how it can eat up all your profits
legal - how attorneys don't really give you the time of day and just how pompous most are
realtors - how little most know and how to find a good one or two
coffee - if you don't drink it now - start
smoking - if you don't smoke now - go buy your first pack! lol - only kiddin
FINANCING, FINANCING, FINANCING - and the risks involved - how creative can you get - where else can you get money to fund your investments
exit strategies - what and how to accomplish it - specifically
formulas - EXCEL - learn it, it's a great tool
Cash Flow Analysis - the real deal
Property Analysis
Seller Information - how to get it
Marketing - the fun...but expensive stuff - oh and how to find free avenues for marketing your properties or business

to me, if you spend 6 months doing mock offers, tearing one house to shreds, on paper and really giving a realtor or two hell and improving on your own sheer noobness -

it will pay off in spades, rather than get into something way over your head.
the thing is, you must not give up. you must not fall off and be deterred - if you're the type of person who's used to being on a diet and falling off - your chances of sticking it out during this prep period are low, but you can do it.

just think of the alternative - working for the man - depending on your gov't to take care of you and yours....forget that -
stick with it - YOU CAN DO IIIITTTT!

to night -

every new investor has "a plan" or "my plan" or "our plan".

it's good to have plans.

once you get one, start learning about rei. there's is SO much to learn, it's unbelievable. really it is.

i would actually recommend either borrowing or buying carleton sheets. yes, carleton sheets - the whole "no money down" thing isn't really the good stuff. but what is good about it is it really is written pretty good and understandable.

now...

that's only a start - after that - goto your local library and take out
"Rich Dad, Poor Dad" kiyosaki
"Real Estate Riches" Deroos
"Building Wealth One house at a time" -

in that order. if you don't like to read - take out the tapes and listen to them over and over.

if you don't know about money - the kiyosaki tapes will get you started - it's basic. the Deroos tapes/book will definitely motivate you
and the third book will give you a hands on approach.

the carleton sheets tapes are a great reference, as they are filled with very helpful information. but, you must read it and read it again, and listen to it over and over. it's all the little things that are important.

then

while you're doing this, call local mucipalities and start asking questions - learn the language of rei. this is absolutely imperative.

and have fun. this takes work. alot of people have a plan, but fall off from that plan because...well, they're just too damn lazy and scared.

"make an effort, not an excuse."

good luck

oh and visit my website :D it's brand new

well if you take equity out of your home - you want to invest it in something that returns higher than what you're paying in interest on the loan, right?

how do CD's do this?

even if i HELOC for 30k - i use say 20 of that to invest in a property and take the other 10k and put it in a CD earning 5% while my HELOC is 6.5% and climbing?

i'm not sure if that's the way to go. use all of the money, with the exception of emergency funds, like 5k and use it to buy up a rental. see if you can buy one all CASH, depending on where you live. i'm in NY, long island - there isn't any 25k properties anywhere - people's landscaping costs twice that...lol

u finally nailed it -
"why would anyone ever sell their property 20% cheaper than it's inherent value unless they are really motivated and under duress? "

BINGO.

now, this deal - now you're saying it's 180 value and you got it for 157 or it's 162 value?

i'm still unsure of what you want to do with this property. if you're rahabbing it for 5000, thus putting yourself into it for 162 total then you're repair is increasing its value another 23k over what you're paying for it - sooo
then you're selling it?

or

renting it

or

living in it

the strategy i pointed out in last post is not by any means, my own. MANY re investors do that. in fact, i'd say that about over 50% of rei's that invest in SFH or some duplexes, triplexes - do it this way. over 10 years, they accumulate rentals, maybe they sell 1/2 of them off, use the profits to pay off the other half, thus reducing liabilities, or maybe they invest in more.

bottom line is, that's the bread n butter of rei. now on this little post, steps 1-9 seem cut and dry, but there is alot of analysis, work, sweat, and risk involved.

i mean, you want my opinion of this deal you're talking about - i'd say, from the little i know, pass on it. move on. it won't cash flow or it'll be super tight and there's just not enough margin there for you to make any substantial profit.
ARV = 180,000 X .70 - 5000 = 121,000 - you're paying 36,000 over that. from my perspective, you're paying market value. and even if you live in it, these things have a way of going like this:
projected rehab cost = 5000
actual rehab cost = 15,000
Especially, when you're first starting out and/or living in it. if you live in it after buying it at market value - okay, you do some improvements and it increases in value - good - now don't keep dumping money into it - STOP. be disciplined, keep it nice, and keep to your plan - then do whatever, refi, sell, etc. but that's not easy. it's real easy for the wifey to say, "oh honey, i want a new kitchen floor" 6 months later, "oh this damn sink and bathroom, i hate it" and 1 year later, "what if we added another room, knock this wall down, and buy a new refridgerator...."

get my point? i'm just trying to be helpful man.

personally, if i'm single and/or married with no kids and i have an income that pays the bills, the following strategy sounds like a very good one.

1. buy a property in an appreciating area to live in - below current market value 20% minimum.
2. improve that property to increase ARV.
3. live in it over 2 years.
4. sell it, no cap gains taxes, and buy another property.

or
4. HELOC/refi for more money
5. Open LLC/S-CORP
6. Use $ from 4 to fund step 5.
7. LLC/Corp to buy another property below market value and rent one, live in the other (keep the one you live in out of the business).
8. Continue paying down both - one with renter, other by you.
9. Wait 2 years, repeat 4 - 9.

During all this, over 10 years, you accumulate 5 or so properties (or more if you can buy cheap, way below market), you get rewards of appreciation (hopefully/most likely) and depreciation (rentals), and of course, increase cash flow. Additionally, you take on greater responsibility, more headaches and challenges, but ya know what, that's what life is all about.

Everytime a relative of mine says that they'd never do that because this or that happens and evictions and the like are aweful blah blah blah, I just take a look at the way they live (check to check, etc), and think,
"bring it on!"

now i'm confused.

you're living in this condo. so you are personally going to buy it and live in it and plan to sell it.

that is an entirely different strategy than straight up rehabing to sell, mainly because you can still live in it and make the payments yourself, take on a roomate or whatever.

do you have a job that pays you income?

reason i ask is because with that little a margin between ARV and purchase price, there isn't much you can do in terms of pulling money out.

plus, remember, as many rei guys will say, "CASH IS KING". Equity does not pay the bills. that's the everlasting problem of the basic homeowner (and re investors may own a personal home, but they ain't going about their business as a homeowner does, ie. buying at or too close to market value). homeowners look at equity and think the world of it. bottom line is though, you can't realize it unless you sell it or rent it out or take it out in the form of HELOC's or refi's and invest it in something with a much greater return than you're paying for in interest on the loan. and even though rei is a much more stable investment vehicle HANDS DOWN over the stock market, equity or value in a home can fluctuate with the market - what it's worth today, could be worth LESS in the future.

and yes, rental income is just that - income. it is taxable. but it's pre-tax dollars - you get paid up front and your accountant deducts every damn penny he/she can, to lower your taxable wages and additionally, depreciation impacts this positively as well. if you rent properties, the advantages are numerous. don't forget appreciation values (assuming you're buying in an appreciating area). employee dollars are after tax - the gov't gets paid before you do - major disadvantage.

hey i didn't write that much! :goofy:

qualifier to last post:

factors that impact rei strategies:

EXPERIENCE - this involves having advanced knowledge of rei - being able to look at something and KNOW it's a gem, realizing that even at or below break even for a year or two, a certain investment is a great opportunity regardless and this of course, depends on the next factor.

CASH (OPERATING FUNDS, DOWN PAYMENT, BUYING ALL CASH, ETC.)
Individuals, partnerships, Corporations etc, that have the means to close in 48 to 72 hours, or have enough funds to take on a negative cash flowing investment for an indefinite period of time - again, knowing it's a killer investment opportunity. Plus, if you've got CASH - you can make any rental cash flow - the more you put down or pay all cash - sure you'll be in the black - [cash killers for the noob are mortgages, contracted work, commissions and high taxes]

the more EXPERIENCE and CASH, you or your company has - the more you can speculate and not worry about having negative cash flow. But even these experienced investors avoid such situations usually and no investor really likes a break even or red situation - people want to make money - period.

if your'e starting out - don't waste your time with at market junk. move on.

good luck...

splinter -

this is what i'm talking about when i say that there is no formula that gives you the ultimate thumbs up. these things are just quick snapshots that can help you make quick judgements, which can let you know whether or not to proceed with more in-depth analysis. that's all they can do.

and the formula i gave you is:

monthly rent/value

so 1500/162,000 (is this the value or just the price?)

= .009 - move the decimal over 2 = .9 for this formula

so you're just under 1, which means that's an okay rental price that matches the value of the property. that's it.

Don't skim over the most important thing I wrote. In my opinion - if you're not "buying right" - below market by at least 25% - then you're not investing. rei is ALL ABOUT "buying right" - finding "motivated sellers", deals and such. that's why you'll hear people talk about "wholesaling", foreclosures and such, because they're a given -usually - that they're below market value.

and "motivated sellers" are those that are in pending divorce, family problems, money problems, investors who ran the property poorly, other "investors" on burn-out etc. if this property for 162,000 is being sold by an agent or seller that really isn't "motivated" to sell - then you're wasting your time. now all sellers are "motivated" to sell - that's a given - they want to sell their property, unless they're just putting it on the market to see what offers they get (kinda like market researching). But a MOTIVATED SELLER is hungry and they want OUT yesterday!

as an INVESTOR, this is what you look for, period. whether you're flipping, rehabing and selling or renting. it's hard, in any area of the country to buy at market and see any type of positive cash flow. looking at rentals only - lets say your strategy is to purchase to hold and rent - thus sucking up appreciation, depreciation and cash flow, tax benefits etc.
rents usually are comparable to values in the area OR they're less (not good - see Long Island, New York). If you don't "buy right" - you're cash flow will be so near break even on paper, that there is a FANTASTIC chance that you'll be in the red.

forget the formulas - focus on YOUR MARKET. focus on the real numbers. who's selling, why are they selling, how hungry are they, condition of the neighborhood (safety/properties/etc), and condition of the unit itself (can I do the repairs, what's it gonna cost me) and finally, the quality of renters in the area and vacancy rates.

good luck...

what you're asking depends on a lot of factors.

1. level of risk comfortability - what are you comfortable with?
2. speculation projections - if it's a breakeven property now with conservative numbers - does that offset the fact that speculations indicate large equity growth in the near future
3. your operation funds - what you have in the bank to manage the property and possible negative cash flow
4. experience - you or any partners you may have that have done this before.

this is just a quick snapshot. formula's to the noobs like us are like little bits of comfort. they "let us know" in black and white if it's "good" or "bad".

it's just not that simple. BUT

a quick formula you could use to match rent income to value would be:

monthly rent divided by value of home = rent to value ratio - anything over 1 could be considered adequate.[move decimal over 2]

now, for 162k, the property you are featuring in this thread - what is its value?
assuming 162k value -
it looks like a .9 rent to value ratio - less than 1. but .9 is not necessarily bad...
or you could use this formula:
gross rents devided by 2 - per annum mortgage payment = possible cashflow - this is a quick snapshot view of cashflow...

now if you're thinking..okay now what...refer to beginning of this post - it all depends on what you or your company can handle.
other things to consider are:
interest rate & terms
money down
loan amount
taxes
Fixed Expenses
Variable Expenses
market value
market speculation
rentals in area - vacancy rates
quality of renters
property management - you, your business, or someone elses
repairs - you doing the rahab or relying on contractors (good luck)

now you probably know all this so it's redundant BUT, in my opinion, all of the above is really what counts, bottom line. i don't care if you buy a 20k unit and rent it for 400 a month and have a 10k loan. the KEY, i would say is BUYING BELOW MARKET VALUE...but that's a whole other post...bottom line, if you ain't buying below market, you're not investing, you're...doing what any other schlub can do and probably operating either too close to break even or just in the red period.