All Forum Posts by: Spencer Cornelia

@Samuel Iwu Network, network, network.  Spend the two years networking and learning.  Then when you have some cash you will have options.  Hopefully during those two years you will develop a strategy that works best for you.

What works for me and everyone else on this forum may not work for you.  Find out what works for you.

Whatever route you choose, use as much cash as you can.  Over leveraging yourself is a dangerous game.  Some people on here will argue that you should leverage yourself as much as you can, but that's exactly what people did in 2006 and got wiped out.

@Chris Mcdonald I see that you're in California so I'm assuming that a deal would be taking place in California.  I recently became aware of the law in California pertaining to how much interest can be charged.  Check it out here: https://www.yourlegalcorner.com/articles.asp?cat=emp&id=97

You'll need to consult with someone more knowledgeable than I but it's something to consider.

In regards to your question, why not keep the first deal simple and have everything be 50/50?  And then if you're able to refinance all the money out, then you keep a 70/30 split of the monthly cash flow and future equity of the property.

You mention that you will refinance so I'm assuming you will be able to pull all of the initial cash out of the property. In my eyes, if you're able to perform a BRRR successfully and the friend will get their money back and then have monthly cash flow and 12.5% equity in a California property, then you're offering them a great deal. In return, you get more equity and cash flow after refinance.

@Ben Haridim "I'm 19 years old".  This is the greatest advantage you have.  Listen to Gary Vaynerchuk talk about the value of age and long term focus on one goal.  Don't get caught up with some success stories on here and YouTube - "How I Own 200+ units in 30 days" type of success stories.  They're extremely rare.

What someone in your shoes needs to do is spend the next 2 years devoted to learning the game of real estate investing by listening to every podcast imaginable, going to every real estate networking event in your city and area, and by becoming more obsessed in real estate investing than I was in pursuing the women and parties in college.

I'm 29 years old and far ahead of my peers.  And I've only spent 2 years in this game.  You can spend the next 5 years networking with every Big Wig in West LA and buy your first deal at 24 and you'll still be so far ahead of the curve, you won't realize it until you're much older.

Here's the importance of networking: you'll figure out what people are doing near you.  You can talk to them.  You can learn from them.  You can FEEL their success to know how to replicate it.  You can FEEL their mistakes to know how to avoid them.  You will FEEL motivated just by being around them.

Time is on your side and it's the most expensive currency on the planet.  You may not have money, but you have the most valuable thing in the world.  Use it wisely and your success will not have a ceiling.

@Samuel Iwu Nearly everyone on this forum (all 1.4mm individuals) had a starting point of less than $100k cash.  I would bet my bank account on 99% started with less than $100k.  The reason why people don't purchase with cash is they simply don't have it.

Looking back, having the ability to do rehab projects with all cash is the easiest way to get rich.  The catch?  No one starts with $250k.  Even lower priced markets where there is enough activity to justify flipping houses requires at least $100k - $150k of cash in order to complete a full purchase and rehab.  That's a lot of cash.  Something like 50% of Americans right now are a $1k expense away from financial turmoil so you can imagine how few people have $100k+ to invest.

I do agree that using cash is a great strategy.  I'm over-leveraged at the moment with two hard money loans at 15% and I can tell you that I will never experience this again.  I'm one economic decision away from potentially losing everything.  Using cash mitigates this.

Since there's potential that we've already reached the peak of the housing market, leveraging yourself to the max is probably not a statistically wise decision.  Jack's strategy is great on paper, but he just gave a scenario where there's 5 properties with $0 in reserves.  That's one unfortunate break away from losing all 5 (hello 2007).

@Justin Reyes Here's a thought:

Let's say you are able to grab the 401k money from loan or cashing out.  Let's assume you walk with $20k after fees/expenses.

In Milwaukee, you can use that $20k to put towards a 10% down payment on a $150k home and have $5k for closing and reserves.  I just looked on Realtor dot com and found a few 4 bed options in the $100k-$150k price range.

Save up for a month or two and furnish the house and the 3 other bedrooms.  Rent the other bedrooms for $400 each and charge $50 a month for utilities.  That's $1,350 a month in income.  All of your expenses will be covered.  Whatever you are paying in rent drops to $0 on your personal balance sheet.  So the cash from 401k has now created a $16,000 yearly income stream.  In 18 months, you'll recoup the 401k position.

Of course this is ignoring the long term benefits of a 401k, but when has 401k money put food on your plate?  When has 401k money helped you TODAY and not in 30 years?  The answer is never.  401k is for the long term.

But you're talking about today.  House hack a small multi family or a 4+ bed house and your income will trump any kind of return the 401k will get you.  And most importantly, it puts money in your pocket today.

@Josiah Sia Seller concessions is cash provided to the buyer by the seller at closing.

The most common example is something minor needing a fix.  During inspection, the buyer notices that a little item needs to be fixed.  Let's say $200 to fix it.  The seller can choose to fix the item or just offer some cash to the buyer to have it fixed themselves.  Because of the inconvenience, they offer $500 to the buyer.

@Wil Reichard do you mind sharing some details on the financing portion?  It reads like you got a hard money loan?  If that's the case, what were the terms and holding costs?

I noticed that your profit looked really high for the numbers listed and you only had $8k-$9k in holding/points/fees.  If that's the case, that's really low for your first time.

Great job!

@Steven May I've only done one campaign of direct mail so take my comment as one who is only slightly experienced.  I was able to land a 4plex using seller financing here in red-hot Las Vegas, NV.

My mailer was hand written and was very simple:
"
Hey Steven,

My name is Spencer Cornelia and I am interested in buying your property at 123 Candy Lane.  How much do you think it is worth?

Text/Call -- {Phone Number stamp}
Email -- {Email stamp}

Spencer

"

In a couple months, I'm going to start another direct mail campaign and will be using services instead of hand writing.  Hand writing is great and more authentic, but you're so limited with how many you can send out.  Sadly, the hit rate is super low so only sending out 40 has a very low probability of success.  I don't want that to stop you from doing this, but once you go through 2-3 rounds of hand writing mailers, you'll quickly find that spending $1k-$2k on 1,000's of mailers is probably a better use of time.

But you asked for advice...

Don't worry about overthinking it man.  If the people have any interest in selling, they'll call.  I know Patricia above says she receives mailers all the time, but I don't think that's the case for most owners.  I have a feeling most of these owners will see your cute message and will call if they want to sell.

A simple message is probably all that's needed.

If you want some real advice...

Check out Sean Terry's Flip 2 Freedom podcast.  Dude is all value.  "All steak and no sizzle" kind of guy.  His recent podcast on wholesaling (of which he has plenty) really helps lay out how to do well with marketing and grabbing off market properties.

@Kim Snyder Don't take this as a snarky comment, but I think you should spend some time learning about lending before looking for hard money lenders.

The reason why I say that....

Hard money lenders are very expensive and can get you into trouble if you aren't careful (I'm going through this now).

Hard money lenders are for short term loans so asking if there are any that offer 30 year terms is not looking in the right place.  Additionally, no lender is going to lend 100% of a deal unless you're 

a) experienced 

b) have an all-in flip at ~70% ARV

Are you looking to flip/rehab houses?

Are you looking for a home to buy?

Are you looking for a rental property?

Maybe by figuring out what you're looking to do we, as the BP community, can help guide you the best way we see fit.

@Michael Carbajal if you were to do the work yourself, how confident are you that the house would be able to sell upon completion?

Re BRRR - one thing to keep in mind with BRRR is that you have to qualify for the refinance part which is pretty tricky.

What I know about you: you are buying your first deal and you are a real estate agent.  My mind quickly jumps to the chance that you are new to both.  If you are new as an agent, do you have the tax returns and income that a bank will want to see for the refinance portion?

I'm knocking out my first two flips now and briefly thought of holding my first flip.  But then I looked into the rates and terms for the refinance portion and quickly found that it wasn't worth it.

Me personally - I view this as a win if you can be all in around $80k-$90k and sell this yourself as the agent.

But realistically, there will be some unforeseen costs.  So let's say the rehab and holding costs are $75k.  You're all in at $102k.  If you sell the property yourself, then you can make about $20k profit.  The experience alone will be worth far more than the $20k.

As for the BRRR..

You'll need to be all-in around $87k-$94k to get all of your money out. That will be very difficult. And you'll need to put some cash into the closing costs too, have reserves, and be confident that your DSCR is about 1.2

@Christopher Smith I bought a house in Vegas that is 7 beds / 5 bath that I live in and rent out the other 6 rooms.  The gross income is $3,600 a month and I believe I can push it to $3,750 within 12 months.  The monthly expenses are $2,000 for everything!

I bring up my deal because I bought it using a lease purchase agreement.  Chris - if you follow enough real estate success, you may start to believe that you need a bunch of money in order to succeed in this game, but you really don't.  Because of the financial limitation, you may need to get a little more creative with your first deal.  Or you will need to take more risk.  But that's okay because a lot of us started from this point.

Now back to the lease purchase...

A lease purchase allows you to control a property without having to deal with a bank for financing (until a later date).

Since I purchased with this type of contract, I was able to negotiate the terms with the previous seller and never had to worry about dealing with a lender.  I wouldn't have qualified for this house had I tried to buy it traditionally.

Back to your situation...

If you aren't young and single and willing to live with a bunch of degenerates like I can, then you still have other options.  What about buying a 2-4 unit and living in one unit while renting out the others?  Maybe you don't qualify for the loan if you were to use a bank.  But now that you have the sharpest tool in the shed at your disposal, you know that you can qualify for any property you lay your eyes on.  You just need to sell the seller on YOU.

And I did all of this with a salary similar to yours :)

What market are you in?  I'd recommend putting your location in your profile so others in your area can see and reach out to you.