Many people would like to get involved in investing in Real Estate. However, most are limited with funds with which to buy properties. The myth that most people believe is that if you want to make money in Real Estate you have to have substantial cash to begin with. As I said, this is a myth because it is UNTRUE. There are MANY ways you can buy, sell, hold , or control income producing properties with little or NO CASH. I know and have known several people who have built substantial Real Estate portfolios who started with no cash.
I’m going to tell you the story of Bob and his wife, Greta. I first met Bob when I was a Broker in Arizona. Bob had just moved to Arizona from Florida. He owned a good amount of Mortgages secured by properties he had sold in Florida. He wanted to use these Mortgages to acquire income properties in Arizona. I worked with Bob to help him accomplish his objective. We became close friends and eventually partners in several Real Estate ventures.
But, back to the story - When Bob was in his 50′s he lived in Florida and owned three shrimp boats, with which he made a good living. Then there was a storm which destroyed all the shrimp boats. Bob had NO insurance on the boats. Very shortly Bob and Greta were broke. Bob was definitely an “Entrepreneural” kind of guy. The next part of the story proves it. So to make ends meet, (You may not believe this), Bob and Greta went into the wig business. Most of you won’t remember this but wigs became very popular back around the 1950′s or 1960′s, especially among the ladies.
So, Bob and Greta established a weekly wig route. They would buy these wigs in bulk wholesale for, say $2.00 a piece. On the routes they established they would sell the wigs for, say $20.00 with $5.00 down, then the balance payable at $1.00 per week. Greta would style the wigs for their customers. OK, back to the Real Estate part.
Bob happened to run across a duplex consisting of 2 bedroom units for sale. Both units were vacant, and they needed minor fix-up to make them presentable. The owner was sick and tired of tenants and was a real “Don’t Wanter”. Bob was confident that he and Greta could do the work needed to make the units presentable to tenants. The owner was asking $30,000 for the units (remember this was back in the 1960′s). Bob made the following proposal which was accepted so fast Bob knew he had offered too much.
Here’s the deal:
Bob & Greta bought the units for $25,000 with their work to make the units ready to rent as their down payment (That’s called “Sweat Equity” folks). Then the balance was payable at $150.00 per month to include 6% interest. The first payment was not due until they had rented the first unit. They soon had both units rented at $300 per month each. So – after Note payments, Insurance, and Tax escrows, Bob and Greta’s Net monthly income was $350 a month, not bad for a little “Sweat Equity”.
Well, needless to say Bob knew that he had struck gold. He began looking for properties that someone didn’t want anymore. There are always those around. you just have to look. Over the next 10 years or so, Bob & Greta acquired several properties. When they decided to move to Arizona they sold and financed these properties themselves. When I met Bob he and Greta owned several hundred thousand dollars in Notes and Mortgages. We then used these notes to acquire for them income producing properties in Arizona.
The moral of this story is that there is always plenty of good Real Estate deals out there that can be done without cash; however, you have to look for them. They will seldom come looking for you, EXCEPT when the word gets out that you are looking; then they will even come to you.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Showing posts with label Properties. Show all posts
Showing posts with label Properties. Show all posts
Monday, January 10, 2011
Tuesday, November 16, 2010
Grow Your Own Investment Money Tree
OK, so now you have made the decision to become more active in investing in Real Estate; however, your funds are limited, plus your credit may not be too good. You don’t want to have to depend on the fickle banking industry to provide you with funds to do your investing. You know the old story of who a banker is, right? “A banker is a person who will lend you an umbrella; however, he wants it back if it starts raining.”
So, where are you going to get the money to do your investing? Ask yourself a question. Where do the banks get their money to lend to you or other investors? Mostly from private parties; deposits, CD buyers, etc. Well, why don’t you go to the same parties to find the money you need to do your investing? How much do you think the banks are paying people to put money in the bank? Regular depositions? – Nil. CD Buyers? (by the way, that’s Certificate of Deposit, NOT Compact Disc) – maybe 2% to 3%. Hard to get rich on a 2% or 3% Return.
Speaking of 2%, I’d like to break for a humorous story. Back when I was selling Real Estate as a broker, I met a crusty, older investor who eventually became my partner & dear friend. When I first met him I asked him what kind of Return he wanted on his money. His reply was “Two percent”. I repeated to him, “Two percent?” “Yeah”, he said, “If I invest one dollar, I want two dollars back; 2 for 1. Two percent!”
OK, back to more serious stuff. You then, are going to go to these folks who are putting their money in the bank and show them how they can work with you and get a much better Return on their money and do it safely. First though, you must develop a business plan and put it in writing. You are going to have to show these parties (potential investors) what you will do and how you will do it to earn them better yields on their money.
Your plan must be realistic and it must be specific. For example, let’s say that you are going to buy houses that need some fixing-up. After you fix them up and resell them at a profit, your plan should include the following:
1) A Mission Statement as outlined above, of all that you are going to do and how.
2) How the investor will always be protected in that he/she can always have more than
enough security for their investment – i.e.
a. They will hold a First Lien on the property they are lending on.
b. They will always have Title Insurance and Hazard Insurance.
c. They will never be more at risk than a safe percentage of the property value,
say 60% to 75% max.
3) You need to be able to answer questions, such as, “What happens if you can’t pay
me back when the loan is due to be paid off?” Your answer might be, for example:
a. I will pay you a bonus to extend the loan.
b. I will make a new loan with another investor and pay you off. And then,
the ULTIMATE answer,
c. If I can’t pay you off, then you will own the property at 65% – 75% of it’s resell
value, and it will be fixed up and ready to sell.
If you have a specific property picked out which you want to borrow on, bring complete details on that property to present to the investor. Give him/her an inspection tour of the property. If you have details on other properties which you have bought, fixed-up and sold, be sure to present these case histories to the investor. Also, if you have positive references as to your past work, achievements, etc., present those as well – Even if they do not relate to this specific kind of project. What you are doing in these initial meetings is building confidence and trust with the investor.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
So, where are you going to get the money to do your investing? Ask yourself a question. Where do the banks get their money to lend to you or other investors? Mostly from private parties; deposits, CD buyers, etc. Well, why don’t you go to the same parties to find the money you need to do your investing? How much do you think the banks are paying people to put money in the bank? Regular depositions? – Nil. CD Buyers? (by the way, that’s Certificate of Deposit, NOT Compact Disc) – maybe 2% to 3%. Hard to get rich on a 2% or 3% Return.
Speaking of 2%, I’d like to break for a humorous story. Back when I was selling Real Estate as a broker, I met a crusty, older investor who eventually became my partner & dear friend. When I first met him I asked him what kind of Return he wanted on his money. His reply was “Two percent”. I repeated to him, “Two percent?” “Yeah”, he said, “If I invest one dollar, I want two dollars back; 2 for 1. Two percent!”
OK, back to more serious stuff. You then, are going to go to these folks who are putting their money in the bank and show them how they can work with you and get a much better Return on their money and do it safely. First though, you must develop a business plan and put it in writing. You are going to have to show these parties (potential investors) what you will do and how you will do it to earn them better yields on their money.
Your plan must be realistic and it must be specific. For example, let’s say that you are going to buy houses that need some fixing-up. After you fix them up and resell them at a profit, your plan should include the following:
1) A Mission Statement as outlined above, of all that you are going to do and how.
2) How the investor will always be protected in that he/she can always have more than
enough security for their investment – i.e.
a. They will hold a First Lien on the property they are lending on.
b. They will always have Title Insurance and Hazard Insurance.
c. They will never be more at risk than a safe percentage of the property value,
say 60% to 75% max.
3) You need to be able to answer questions, such as, “What happens if you can’t pay
me back when the loan is due to be paid off?” Your answer might be, for example:
a. I will pay you a bonus to extend the loan.
b. I will make a new loan with another investor and pay you off. And then,
the ULTIMATE answer,
c. If I can’t pay you off, then you will own the property at 65% – 75% of it’s resell
value, and it will be fixed up and ready to sell.
If you have a specific property picked out which you want to borrow on, bring complete details on that property to present to the investor. Give him/her an inspection tour of the property. If you have details on other properties which you have bought, fixed-up and sold, be sure to present these case histories to the investor. Also, if you have positive references as to your past work, achievements, etc., present those as well – Even if they do not relate to this specific kind of project. What you are doing in these initial meetings is building confidence and trust with the investor.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Friday, July 16, 2010
Creation Of Wealth - With No Cash
You are a Real Estate Broker/Agent. You have a client named Mr. Carlson to whom you helped obtain a Mini-Storage Facility approximately 3 years ago. The property was in poor condition when Mr. Carlson bought it; however, he has completely renovated it and has increased rents and value considerably. Mr. Carlson wants to acquire more tax shelter; however, even though his cash flow is excellent, he has used most of his cash reserves upgrading the Mini-Storage Units. Also, because he now has great cash flow and property in excellent condition, he wants to hold on to the Storage Units for maybe 3 or more years before considering an exchange into larger property.
Mr. Carlson has now come to you with this situation. He wants your advice and help to accomplish his goal. After a thorough meeting with Mr. Carlson, you begin searching for a property that will provide him with the benefits he needs. You comb through MLS, search the newspaper classifieds, and contact other agents you know who specialize in Commercial and Income properties. You locate through one of the agents you know, a 24 Unit Apartment Complex which has a 30% vacancy problem and needs physical upgrade to the property. The owner, Mr. Mendoza, has had the property on the market for sometime with no acceptable offers. Although he wants out of this property, he is not willing to take what he considers a deep discount.
So you show the apartments to Mr. Carlson. He likes the units and feels that he can do an upgrade and get the units fully occupied again. Still the problem is that he has little cash to buy with, and the units are in such poor condition that it would be very difficult to obtain a loan to purchase them with.
ANALYZING THE SITUATION –
1. Mr. Carlson’s Mini-Storage Units:
Owner’s Value – $260,000
Loans - $0
Equity - $260,000
2. Mr. Mendoza’s Apartment Complex:
Owner’s Value - $400,000
Assumable Loan – $180,000
Equity - $320,000
Possible Solution: Mr. Carlson offers to purchase Mr. Mendoza’s Apartments with a Blanket Note of $320,000 secured by both properties. Terms of the Note would state that after 3 years the Storage Units would be released as security for the Note providing Mr. Carlson has upgraded the Apartments.
BENEFITS TO THE PARTIES –
1. Mr. Mendoza receives full price and has excellent security for his Note.
2. Mr. Carlson receives the Tax Shelter he is looking for and can exchange the Storage Units after 3 years.
3. Each Broker/Agent has earned a commission.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Mr. Carlson has now come to you with this situation. He wants your advice and help to accomplish his goal. After a thorough meeting with Mr. Carlson, you begin searching for a property that will provide him with the benefits he needs. You comb through MLS, search the newspaper classifieds, and contact other agents you know who specialize in Commercial and Income properties. You locate through one of the agents you know, a 24 Unit Apartment Complex which has a 30% vacancy problem and needs physical upgrade to the property. The owner, Mr. Mendoza, has had the property on the market for sometime with no acceptable offers. Although he wants out of this property, he is not willing to take what he considers a deep discount.
So you show the apartments to Mr. Carlson. He likes the units and feels that he can do an upgrade and get the units fully occupied again. Still the problem is that he has little cash to buy with, and the units are in such poor condition that it would be very difficult to obtain a loan to purchase them with.
ANALYZING THE SITUATION –
1. Mr. Carlson’s Mini-Storage Units:
Owner’s Value – $260,000
Loans - $0
Equity - $260,000
2. Mr. Mendoza’s Apartment Complex:
Owner’s Value - $400,000
Assumable Loan – $180,000
Equity - $320,000
Possible Solution: Mr. Carlson offers to purchase Mr. Mendoza’s Apartments with a Blanket Note of $320,000 secured by both properties. Terms of the Note would state that after 3 years the Storage Units would be released as security for the Note providing Mr. Carlson has upgraded the Apartments.
BENEFITS TO THE PARTIES –
1. Mr. Mendoza receives full price and has excellent security for his Note.
2. Mr. Carlson receives the Tax Shelter he is looking for and can exchange the Storage Units after 3 years.
3. Each Broker/Agent has earned a commission.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
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