All Forum Posts by: Wendell De Guzman

 Nathan, please send me a PM and I will share that with you.

If you have CASH and you're a NEWBIE real estate investor, don't tell everyone you have so much cash to invest. You need to LEARN the fundamentals of good investing first.

Here are some of these fundamentals. These are very basic but you'll be amazed by how people don't stick to these basic tenets of good investing:

1. BUY LOWER THAN MARKET VALUE. Warren Buffet calls this having a good "MARGIN OF SAFETY". In real estate, it's always possible to buy a house BELOW market. How do you find deals below market? Well that's a whole different topic in itself. Search my posts entitled "Science of Finding Deals".

2. BUY HOUSES IN AREAS THAT ARE DESIRABLE WITH GOOD DIVERSIFIED ECONOMIES. Don't fall for the trap - "buy this $30K houses that rents for $500/month". They are generally in not so good areas and the cashflow you get from them is not worth it. Desirable cities and towns with good, diversified economies are good to invest in because you get good cashflow and good long term appreciation. DIVERSIFIED economy means the city is not defined by one major employer or one major industry. If that major employer leaves the city becomes a ghost town.

3. INVEST IN INVESTMENTS WITH THE FASTEST "VELOCITY" OF MONEY. What does this mean? Understand what is meant by your INTERNAL RATE OF RETURN. The higher the number, the faster you get your money back. The IRR on Fix-n-flips is very high. Lease with option to buy - when the tenant/buyer qualifies for a mortgage also has a good IRR.

If you use leverage (i.e., financing to purchase properties), your IRR increases but your risk rises as well. Depending on the investment and the risks, you can decide to use leverage or not.

4. INVESTMENTS ALWAYS HAVE RISKS AND YOU NEED TO PREPARE ACCORDINGLY. If someone from BP tells you their investments have ZERO RISK, run in the opposite direction. Bad things sometimes happen to good investors. There are always unforeseen factors. You can't see through walls and sometimes a rehab project goes overbudget. How do you prepare for the risks? You need to prepare a MITIGATION PLAN - so you have a plan to minimize every risks and you also need to prepare a CONTINGENCY PLAN so if the risk happens anyway, you know exactly what to do.

5. INVESTING IS A TEAM SPORT. You need to work with a team to help you succeed in whatever real estate investment you choose. For example, if you decide to fix-n-flip, you need at least 3 people as a member of your team:
 A) a good buyers' agent or a good wholesaler who can find you off-market deals
 B) a good GENERAL CONTRACTOR
and C) a good listing agent to help sell your properties

and lastly,

6. UNDERSTAND HOW INCOME & PROPERTY TAXES AFFECT YOUR REAL RETURN ON YOUR INVESTMENT. The flip shows on TV made newbies salivate about the profit they can make but a flip will result in a high tax liability compared with a rental property. Also, what about property taxes? If you intend to buy rental properties, do you know the long term property tax outlook of the city/town you intend to invest in? If there's a good chance for property taxes to go up, your cashflow will go down most likely. 

Bottomline: don't ignore taxes. That could very well be your biggest expense.

So the above is just the basics.

Experienced real estate investors - are there are other "basics" I've missed and you'd like to share here?

 Gen, 

Agree with you not saying to folks how much cash you have to invest. I'm sure you've gotten far too many "Colleague Requests" by now.

Back to your question - "where will I invest to maximize cashflow and appreciation"...

1) It's rare that you can get BOTH GOOD cashflow and appreciation. If you have time and you want to learn and do FIX-N-FLIP, then that will give you good "forced appreciation" which you then convert to cash by selling the property. If you want passive income, you have 3 choices:
  A) Rental properties - which have the added bonus of appreciation depending on the area. Below is my description of the different areas and where to get the most cashflow vs. where to get the most appreciation.
 B) Private lending - you can lend money to other real estate investors (e.g., rehabbers) and earn 12% per annum in interest income. What's great about private lending is that you get HIGHER cashflow than rentals but the downside is you don't get any appreciation
 C) Performing NOTES backed by real estate - this is similar to lending, the difference being, notes are already issued loan instruments that you can buy at a small discount (since they're performing)

2) You can do either SINGLE FAMILY HOMES or APARTMENT BUILDINGS. Obviously, the capital requirement for the latter is generally higher. Cashflow is better for apartment buildings in general but right now, they are overpriced and finding good deals is very hard and so the cashflow is not good. Right now, I prefer single family homes. I love rent to own or lease with option to buy because I get a good combination of cashflow and appreciation.

3) The INVESTMENT TYPE is important but not as IMPORTANT as YOUR INVESTMENT KNOW-HOW. People with some cash do not necessarily mean they are investors. As Warren Buffett says YOU HAVE TO KNOW WHAT YOU'RE DOING. Any investment can become TERRIBLE money losing investments if you don't know what you're doing. So, my suggestion: DO YOUR RESEARCH. Learn before you jump. And lastly but most importantly...

4) Stick to the fundamentals of investing and whatever investment you choose, you will likely make money. One of the fundamentals tenents of investing is BUY LOWER THAN MARKET VALUE. If you do this and don't speculate, there's a good chance that you will make money. Also, strive to be IN CONTROL of your investment as much as you can. In real estate, you can IMPROVE property and profit in the process. In stocks - unless you're the CEO, you can't increase the value of the company.

 Luis, please send me a PM and I will do that. Thanks!

 Michael,

The BLOC lender I know and trust works across the US. PM me and I will send it to you privately. Thanks!

You're very welcome. HELOC is good but yes, if you have great credit, you should look into BLOC and PLOC (Personal).

Franklin, you're funny: you like risk and the unknown. True investing is KNOWING the risks upfront, and then having MITIGATION & CONTINGENCY PLANS in place so you will minimize the risks and know what to do if the risk happens anyway. Once you know the downsides of the investment and the returns is still worth it, then go with it. 

You can make money in investing despite the risks but if you're not careful, risky investments where you don't know what you're doing will bite you in the end. Listen to my podcast and learn how I lost money on a 36-unit apartment building but once I learned from that mistake, I bought a 100+unit apartment complex with great cashflow. Here's the podcast: http://Biggerpockets.com/show65

 Yasser, you're very welcome.

Send me a PM and I will send you a very good BLOC provider. I don't want to mention them here in the forum because I follow the strict rule of no advertising in the forums. :-)

 Sure. It's on its way :-)

Bryan,

I just wrote a post here on BP to help you build a track record without the need to raise cash so that once you have that track record, it's easier to raise the cash. Here it is:

https://www.biggerpockets.com/forums/12/topics/378860-how-to-raise-money-even-if-youre-a-newbie-investor