Have Cash/time Lack Knowledge
I've spent a lot of time reading these forums and have a question so i'll give all the readers a little background.
here's the short version of where i'm coming from. My mother has been deceased several years. My father passed away(sudden heart attack) over thanksgiving. He owned a moderatly successful business that was sold for about 1.8M in the last couple weeks. After taxes it should be worth about 1.4M. I'm a 23yo graduate student in the humanities without a lot of experience managing money. My university granted me a 2 year deferment on my education so that i can go home and take care of my 16 year old sister. Until i can get a better handle on things, a family attorney set me up with a financial advisor and will be investing most of the money in gov't bonds. I've been a proffessional student most my life but that has currently been put on hold and i have no real interest getting some sort of retail job. Given my significant amount of free time, im trying to acclimate myself towards the REI world. I've spent a lot of time reading these forums and elsewhere, but the information seems is somewhat biased towards starting on the cheap. My question to the forum is how best can i get my feet wet and leverage my capital without exposing myself to beginer mistakes?
Hi tennesseetkd,
There are many methods used to make money in the real estate business. You could take the time and specialize in 1 or 2 ways that you are most comfortable in. This will take a little time, education and investment in courses, seminars, etc.
Another thought is that you could connect with several local investors and be a money partner with them in their deals. You fund the deals for them for a certain fee or percentage of the profit or both. You learn how they are investing, and you take that knowledge with you. Making money for learning is not a bad idea is it?
You will need to be familar with your market to do this, or simply have a realtor and or appraiser give you an as-is and an after repair value on each property before you or your attorney releases the funds.
Best of Success!
BAMZ
Thanks for the suggestion bamz, based on my very basic information, i feel like tax liens on residential properties would be a good area for me to be focusing on. Getting either the property or the interest seems like a win/win proposition to me. I'm still trying to grasp the particular risks involved with this method.
As far as being a money partner, I'm very fearful of getting screwed. In the short time i've been managing this situation, one financial planner attempted to take advantage of my lack of experience. I take a great deal of comfort in the anonymity of the internet. People who post advice here don't have a lot of opportunity to provide misinformation and im sure the community peer review would be all over them if they did.
Hi Tennessetkd:
I agree with BAMZ. You need to educate yourself, attend seminars etc.... The pro-
blem a lot of newbies face is that there are so many so called "guru's" out there
so it is hard to figure out who is the real
deal.
I would definitely join your local REI Club and start networking with other investors.
You might even find one to take you under their wing and show you the ropes.
Best Riches,
Jeffrey Adam
[addsig]
tennesseetkd,
The one way to help eliminate the fear of getting screwed is to know more than the person that you are lending to. If you invest a little time and dollars into a few specialized courses, whether it be in preforeclosure sales, short sales, sheriff auctions, tax liens, etc.
If taking the time to learn a specialized area of real estate doesnt interest you to be a funding partner, investing your dollars in tax liens would be a good alternative. However before you do this, be sure to research how other investors are successfully doing this. Invest in their books, tapes, courses. Start small, and you can always go larger!
Best of Success!
BAMZ
As the famous Zig Zieglar said . . .
"You dont have to be great to start, but you've got to start to be Great!"
BAMZ
Anyone experiencing a sudden change in financial condition should usually take it slow...put the money in very short term treasuries and do not employ a financial manager...consider Schwab, Vanguard, Fidelity and their basic account structures. Consider allocating your pie in proportions of 1/3 stock equities, 1/3 short-term mmkt and 1/3 RE...stay flexible, make no substantial increases toyour monthly overhead, live like the windfall never occured and read, ask questions and seek out mentoring from a local, successful (rich) investor with qualified integrity...welcome to the land of critical mass.
I'm sure this is asked over and over, but is there a canon of books/courses etc which a beginner should be studying? I've been a proffessional student for the last 18 years im both eager and willing to learn, i think i would prefer something that is very formal and rigerous rather then fluffy and inspirational. Any suggestions on titles?
The vast majority of the money from the sale is currently sitting in short term treasuries. Fortuanetly, our expenses are already very low. Current home is paid for, cars all paid for etc. The last thing i'm going to do is go buy a bentley and head down to the strip club
Other than tax sales, what other areas of real estate interest you. Let us know this and then we will be able to direct you to books, courses, seminars, etc that may be of interest to you.
BAMZ
To: Tenn,
Seems like you are well balanced and reacting correctly to your life changes.
I suggest that you pick up a few tools in this time of learning. Perhaps you might take a real estate license course and sit for the examination and upon its conclusion associate with a real estate company. I would suggest a property management entry level, or a mortgage brokerage firm at office level.
I would not announce my possession of capital as this has a tendency to draw attention to you and at this time it is better to formalize your education yet not make any moves to draw attention. Go slowly like mouse. Lots of cats around.
To learn transaction you go where there are transactions and a Real Estate Business is the spot to be.
At the present time many many persons are taking the license and the competition on the selling end is increasing. But at the service end of the business there are many openings. For example how better to learn the valuation of properties then as a student appraiser. As such you can earn small sums helping those appraisers who have too much work, help measure, write the reports, gather comps etc. etc.
From these small advantage points you can see it all and learn it all. In time you will be ready for your first moves.
Enjoy, it is a lot of fun so much to learn.
Lucius
I think the foreclosure/fix/flip might also be a decent area for me to be involved in. I have a number of skilled construction worker type friends including a union plumber and electrician who im positive i could get to work for me for very low costs(read:a couple cases of beer). I think i mentioned it earlier, but i have a strong preferance towards a very academic/text book style of learning. I've got BAs in math economics and history and thats sort of the thing im used to.
In the last couple hours, i've recieved several private msgs regarding becoming a money partner(there were also a couple benign informative ones). Obviously, im no where near being ready to make prudent decisions, especially with a relativly anonymous internet partner, but i was curious as i'm new to these forums, is there a history of shadier people lurking around these boards?
tennesseetkd,
There are lots of good people on these boards. Unforunately you can't take a sample of people and expect them all to have the same standards and ethics. There are good and bad in every crowd. With the kind of money you talked about earlier, there are probably more than a couple of people that would consider compromising their integrity (at least to some extent).
I agree with the advice given above. BAMZ and Lufos have contributed loads of excellent advice in the past and continue to do so now. Educating yourself thoroughly before you invest any large amounts of your assets is the best advice anyone could give you.
If you have a desire to be actively investing in real estate, while you're educating yourself in the field (sometimes a little practical application is a good way to drive home a point, or reinforce a lesson) I'd recommend keeping things small early in your career. Learn how to do things on a small budget, then take those lessons with you as you move up is size with your investments.
Best of luck to you, Sorry about your loss.
Jeff
P.S. I'm sure that most of those offering you investment opportunities are fine people with good intentions. Protect yourself. You'll be fine!
Dear tennesseetkd,
I am may be a bit wrong, but I would suggest (as I would suggest to my kids) no matter what, to finish their education.
Flipping/fixing/investing are very good things, but college degree never ever hurt.
Also make sure that your 16 yo sister will do the same, not wasting her money on her boyfriend who needs a new car <IMG SRC="images/forum/smilies/icon_smile.gif">. Now that you have so much money, you can send her to the verygood college and with Harvard degree in management or finance she can help you flip/invest/rehab or develop.
1.4 mil is not THAT huge money if you want to invest, its much easier to lose big money then to lose small, because you have this feeling of having big money which last forever.[ Edited by yklimov on Date 01/21/2004 ]
tennesseetkd,
Glad to meet you.
When you post on an open forum that you have a million dollars and need advice on what to do, you should have expected to get romanced via private messages.
You do not need to spend a dime of this money, however you need to learn what leveraging your money is all about. If you study anything, study how to leverage your money and not spend it. After you study and learn you will understand what I am talking about.
John $Cash$ Locke
Excellent advice JohnLocke.
As usual.
Two words for you my friend: "financial literacy"
Two more words: "get some"
I guess that's four words, for: You need to spend a significant investment of your TIME in getting educated about money management, cash flow and the plethora of investment options that are out there. This is a life long learning process that you will be able to benefit from for a long, long time. It is fine to have advisors - there will always be domain experts that know more than you ever will - but you need to be informed enough to make the right decisions. This will be driven by your own personal situation, goals, values, etc.
Although he gets beat up a bit (here and elsewhere), the Rich Dad series by Robert Kiyosaki is not a bad place to start. Once you get past the marketing myth of his "real life story" (if Rich Dad actually said all the stuff in those books, I'm an orc), they are good for getting you to think more productively about your own personal balance sheet and then move on to more substantive learning.
Have fun and good luck.
MarkR
Quote:
On 2004-01-21 09:03, yklimov wrote:
I am may be a bit wrong, but I would suggest (as I would suggest to my kids) no matter what, to finish their education.
That's good advice.
The vast majority of people on this board are honest and correct that you can make a ton of money being a hard money lender/ or money partner in deals and it's relatively risk free, IF you educate yourself to your local property values, repair costs, holding and selling costs, etc.
Just remember this, if your money is involved you will want to control every aspect of it so they will have no way to screw you, through fluffed appraisals, padded rehab repair contracts etc..
(A good attorney and daily checks on the work site inspecting every aspect of the job at each stage will fix that.)
Basically take it slow, finish your education, and along the way learn all you can about YOUR real estate market and REI in general.
Do not do deals with people that don't live close enough for you to be involved in every aspect of the deal, from start to finish.
Join a local REI club. DO NOT TELL ANYONE THAT YOU HAVE THAT KIND OF MONEY, your just putting a big bullseye on your chest.
And psst.. Watch your friends, the ones that you think will work for a case of beer often turn out to be a friendship you can't afford. Remember, if they do you a favor, your now indebted to them, first time they are in a financial crunch, guess who they call? and your going to feel like you should help out the ones that helped you. So don't accept free help from friends, hire good people that warranty their work and all they want is more work in the future. You can afford it, and if your property your buying can't warrant paying professionals to repair it, it's the wrong deal.
You need to figure out what you want to do. Want to buy nice houses, in nice neighborhoods that need a little work and rent em out? This should get you a 10% return on your money a year.
Want to play bob the builder and rehab foreclosures and junkers and flip them? More money in it, but more headaches too.
Finish your education, set a good example for your sister and read this board daily. Real estate license would not be a bad thing, but you'll probably get more from a REI club.
btw- I suggest re-signing up to this board and change your user name so your not such a huge target for unscrupulus types too. Your best bet is to represent yourself as having cash to invest, but not how much.
G
good suggestions so far. I'll add my two bits.
You are fortunate to have time and money. Many people here have knowledge, but very little of the other two.
That said.....You will learn a TON if you learn how to invest in RE without any of your own money. More importantly, you'll learn how money works. Additionally, you'll never be limited.
Right now, using conventional financing, you can buy about 5 Mil. worth of commercial real estate. In my area that's about 100 units of apartments. That's a great start. It could easily pay for itself and allow you to pull money out of it consistantly. BUT, what do you want to do after that???
The question is, what do you want? You're set for the rest of your life if you're ok living on $50K per year. From your questions, it doesn't sound like that's what you want.
Here's what I would do.
1. Create and live on a budget!!! Make sure that your making more than you're spending.
2. find a number of very low risk, interest bearing, time tested investments to put your money into. Your return won't be stellar, but you'll be making money, not loosing it.
3. Continue your formal education and your real estate education. Get a college degree. You might consider a business major with an emphasis in RE, Finance, or entreupenership. While you're in school, use your bank statement to obtain 100% financing on some small projects while you learn the business. Buy a couple of homes, duplexes, or 4-plexes. This will make your education more meaningful (as you'll be able to apply what you learn to real life) and it will get your feet wet.
MOST widdows who inherit a significant sum from life insurance have nothing to show for it after 3 years. People will try to scam you, tell you why you need $20K in RE training, etc. Don't be a statistic.
Learning how to invest with no money will teach you how money works. Owning a few properties will teach you a world about numbers, property management, what to look for in a mgmt company, and give you some experience to show lenders in the future.
Buy and read $300 worth of RE books before you pay money for ANY RE seminar. Many seminars pump you up, and give you a bunch of stuff to read. Very few "guru's" have something that "no one else has". Most techniques can be learned here.
After you've done all that, I'd pull $100K and "play with it" so to speak. Be a HML, invest in tax liens, do partnerships, etc. You will make mistakes. Learn them with $100K and not with 1.4M.
You've got a great opportunity. Don't join the ranks of widdows, lottery winners, rock stars, and professional athletes who have had a million bucks, and now work at Walmart.
Good luck, and I hope we see more of you on TCI.
For what its worth, i finished my undergraduate degree in 2002 and hold BA's in math economics and history. Im in a history PhD program, which i have been able to defer for 2 years(finding a different graduate program locally was not an option) to take care of my sister. My education is a priority, but it comes second to my sister. REI is something i think i can do over the next two years, i think it would be more profitable and better experience then me going and getting a crappy job which i have no intention of keeping after 2 years. I appreciate all the kind words and support on the threads, the advice about changing my name is definitly a good one...soooo i'll be around. You guys really are a fantastic resource.
You could try paper investing for a while. There's a great article on this site called "Monopoly" which describes a way to do that. (Search the Articles for it). Pick a deal you find attractive, then don't do it, wait and see who does do it and how it plays out. It's a good learning technique. When can successfully predict which deals will make money start doing the deals yourself.
Another way to learn: Start small & cheap... get your "hard knocks" without losing much. Don't use your capital for RE investing yet, save up the interest and invest that in deals. Use that money as downpayments and apply for mortgages or hard money for the rest of the deal, just like investors who have to start with less $. It'll teach you fast which properties will move and which are dogs; and you'll get to know some your local RE players and local market. yklimov is right, you can lose a million dollars in a snap with the wrong investments. (bin there, done that). So take your time and leave your inheritance in treasuries till you're pretty sure you know what to do with it.
Diversify for success: I would keep some money in government bonds, some in Florida and/or Texas tax lien certificates earning 20%+ interest per year and the rest would be invested in time to learnt the ropes and to find and purchase real estate at discounted price, so after the purchase I have more (on paper) then what I got before I begun. For education, I would use government sponsored loans at currently available 2,9%.
Omega is almost correct.
Texas is not a tax lein certificate state.
You get a deed to the property.
You also do not make 20% a year. You will only make 25% the first year and another 25% for a year and 1 day up to two years IF, and I say ,IF the property is redeemed otherwise you OWN it.
_________________
B.G. & Wheeler D. LLc Inc. and Trust
(A division of: Half Vast Enterprises)
"Most american millionairs today (about 80%) are first generation rich"[ Edited by WheelerDealer on Date 01/22/2004 ]