All Forum Posts by: Ellis San Jose

@Dion DePaoli

Perhaps I wasn't clear in my answer and should expand my explanation. I acquire underwater mortgages all the time, however, it is underwater to the homeowner & the lender (property is worth less than the loan balance). As the note investor the price I pay is at a significant discount so that I now have the required equity protection. The loan isn't underwater to me or my investors.

I tend to stay away from larger houses as rentals. The expenses associated with the potential damage that can be done on a house that size are significant.

I prefer smaller houses with less to maintain.

Great post:

Flipping versus holding or a combination is a personal and strategic choice. Whichever you choose make sure you take into account the impact of taxes.

Flipping is taxed as income.

A long-term investor has more favorable tax rules and the opportunity to use 1031 tax deferred exchanges.

I understand & applaud your caution in using debt. The proper & responsible use of debt is a powerful wealth creator. All debt is not created equal. Hard Money is not your only choice.

The simple formula of using fixed (very important) low interest long-term financing where payments stay the same, rents & income increase, amortization & appreciation build equity. As long as the cash flow exceeds all expenses by a healthy margin and increases over time, do you really care that much about price fluctuation? And remember all this is paid for courtesy of your tenants.

When I learned how to work a financial calculator, I persoanally like the Hewlett Packard 10BII, it woke me up as to what I had to realistically achieve in order to reach my financial goals. It really is as simple as a mathematical formula. Using $100,000 cash without positive leverage translates into one scenario of how many deals you would have to do and a target rate of return you have to achieve to get there in a certain time frame. Using leverage of 50%, 60%, 70% etc. gives a different result. I am continually astonished that a great majority of investors don't know how to do this.

Remember to factor in taxes, it has a tremendous effect on your results. Keep in mind that flipping is taxed at ordinary income. Interest & depreciation are treated as an expense, and exchanging defers taxes.

The key is to have confidence in your ability to create a series of great deals to build your portfolio. Once you have that, I think you will have a different view on debt & make the appropriate choices.

I like using "call" provisions rather than a balloon.

A balloon forces the borrower to refinance regardless of circumstances.

The call gives the lender more flexibility.

They are acquiring existing Private Placements and fractional ownership shares. I don't know if this technique has an official name. But it's a nice niche. I know a few people who have done well with this strategy.

Each person has their own personal expectations and needs.

Some lenders are perfectly satisfied to beat CD rates at the bank, so offering 5% is like giving them a 500% raise in their income if they are getting 1% a year on a CD.

Others have alternative choices where offering 10% isn't compelling to them.

It is very difficult to put them in a one size fits all box.

Interest rate in many cases is much less important than trust & confidence that their capital is safe & will be returned.

Like the old saying "Return of capital is more important than return on capital".

Hi T Jay,

Having done my share of 1031 exchanges, hopefully this will help.

First, check to see how much, if any, of your 40 acre property qualifies for the $500k married couples tax exemption if it is your principal residence.

A 1031 exchange is meant for exchanging investment property not primary residences.

Locate the areas & then identify the properties you want & tie up as many as you can BEFORE you sell your property to reduce the stress of the time pressures of 1031 deadlines.

Get a good education on management & smart property acquisition. One good agent may not be enough to give the deal flow required.

@Jackie Lange

I wholeheartedly agree. There is a HUGE difference between so called guru's who sell the dream, all glitter & warm and fuzzy but without substance. Then there are those that are THE REAL DEAL. Having been fortunate enough to attend classes led by you, Jack Miller , Dyches Boddiford, Peter Fortunato and others with similar reputation, you can tell the difference.

Have you ever noticed when you are given something for free, it is treated much differently than when you paid for it?

A fool gets hung up on price, the wise understand value.

Wholesaling using a double escrow is just one technique.

You can use an option or an assignment.

Is it unethical to deliver a solution to a seller who has a problem & you perform as promised?

Unless you truly believe in your heart that you are serving the seller with the right solution why should they believe in you?