No Money Down. No Money Up. No Money Period.
OK... I've decided to give myself a month or two to absorb the REI info before making a move... let me step through the motions a few times, etc... I keep wondering about one thing, though. I hear person after person saying that it's not wise to invest without reserves or the ability to generate them (HELOC, cc's if necessary, etc.)
While this sounds like just the kind of peachy advice I would have given a few years back when I was rolling around in cash, I now find myself in a much different situation. At the moment, I have neither the income level, the reserves, or the credit to make things easy.
I have no doubt of my abilities to acquire a property, and to execute a CFD or L/O once I get familiar with the forms... this seems to me to be the easy part. Easy, that is, when compared to the task of covering for a tb when they don't pay, or some such eventually inevitable scenereo.
Now, things will get better, but not soon. I've got a good deal of credit repair to do, and that's the least of my financial worries. So here's the question:
Would you suggest that someone in my position refrain from anything other than bird-dogging, or would you say to be extra careful getting my ducks lined up and go for it since the other circumstances aren't going to fix themselves in the next few months?
If so, what method would you suggest pursuing? (Just so you know, I am thinking about getting into sub2, then selling on L/O or CFD... I haven't decided the exit of choice yet, though I'll undoubtedly end up using those and others, as well as other acquisition methods.)
b/d ing would be the safest way to start. it is a good idea to start rei with reserves. it is not impossible to do but its just a lot easier. reserves makes lifes little surprises easier to deal with.......kenmax
I'm in the same situation you are. I'm going to bird dog and order John's Sub to course. I can always raise a couple grand to catch up a few mortage payments or pay a few mortage payments until I get a LO person in the house. I also found a few investors who are willing to purchase anything as long as the deal is right. I figure if I run across something where I don't have the cash or credit to do the deal I can wholesale it to them. I also have a hardmoney lender who don't care what your credit looks like as long as the numbers work.
Yeah... I have no problem earning $ either... it's a matter of doing so and still having the time to pursue REI. It's always tough to figure out what you need in reserves... I guess I just feel like I've got nothing to lose, so why should I be conservative at the moment?
I had a business a few years back that ran into a huge problem while I was out shopping for multi-million dollar houses for my personal residence. It would have taken literally millions to weather the financial storm... and STILL would have been quite profitable... and I really had no way of seeing it coming. It just goes to show you. Things can and will happen, AND... having reserves means nothing if you don't have ENOUGH reserves... which is why I'm debating the worth of spending time to raise a little cash which will likely only protect me for a short time... time perhaps better spent looking for a better deal and getting some better cash up-front on a TB or CFD and covering myself that way... just thinking out loud.
There is always a risk when doing this type of work but, why put yourself(who is already in a bad situation), in a worse situation without building up some sort of cushion? You sound like a go-getter, and sound really eager to get started but don't make stupid decisions. You asked the question, why wait and build up reserves when they may not be enough? It would be enough if you're not trying to go after the million dollar home on your first time out. If you make good sound decisions you won't have to worry that your reserves not covering the what ifs. However, the whats ifs will further destroy you, even on the lowest end type of property, if you don't have cash reserves. It seems like you want the advice to just jump on in and get started, nobody is going to tell you to do that because it would not be the wisest thing to do especially if you don't yet fully know exactly what you are doing. There are no money deals that can be done but still it is a wise thing to have some sort of backup in case a payment or two,or three aren't made. Birddogging is a great way to start as is wholesaling and if you are as motivated as you sound you'll do great and be ready to do the deals yourself in no time. Try to be patient, learn the ropes, make sound, well thought out decisions, and you'll make it, and what ifs won't hurt you as much as they could if you were unprepared.
Good luck and good investing
quinn
Sure, understood, and agreed...
I'm just trying to get some perspectives on the time value of money relative to getting going.
Specifically, I'm trying to measure in my own life the time needed to NET an extra $5k-$10k or so vs the ability to get a buyer to put that much down. This is why I've asked so many questions on the tax side. It seems to me that If I get a TB to put say $6k down, then I've got somewhat of a cushion built-in, and the taxes aren't an issue until there's more money to help there.
With a linear (and taxed) income, however, it may take some time to net that same cushion. Does that make more sense? You're right, of course... there's probably nothing that could stop me from moving forward, but I'm not completely stupid, and I will do my best to make sure I get my bases covered... if that means waiting, then I may have to.
In the meantime, though, I'm going to do everything in my power to raise my income, clear-up my credit, learn how to do this with little money, etc... and all simultaneously. If there's a way to move forward here without burning myself, I'd prefer that to sitting on my hands.
Actually, if I hadn't started asking questions to begin with, I would not have known that the holding costs are going to be my holdup more so than closing or acquisition costs. Live and learn. Just a few weeks ago, the down payment would have stopped me... and so I keep on whittling...
I appreciate the responses. I'm looking for different perspectives mainly. Am I biased? Absolutely. I've started a number of businesses with no experience, contacts, funding, etc. Not all were successful, but some were... one thing they all had in common, though, was people telling me it couldn't be done because I didn't have the necessary tools, resources, or whatever.
That being said: Yes, I am likely to be much more agressive than most people would be comfortable with. Yes, I have lived most of my life venturing into the unknown, so I am more comfortable with this than most. My idea of losing control over my life is being an employee... and no, I'm not too bull-headed to listen to other perspectives and try to learn something.
I may or may not apply it, but I do appreciate it, and weigh it accordingly. Thanks, all for your perspectives.[ Edited by thestudentisready on Date 05/23/2004 ]
Depending on what your current personal residence is, there may be one option for you to get going. Reading your posts, your personality seems to be one that would see this as an adventure. That would be to go the rehab route and live in your investment properties while you're rehabbing them (obviously you wouldn't want ones that are completely unlivable) and move on when you've sold them for good profits. The "cushion" wouldn't be needed as much since you'd be responsible for paying something equivalent to your own rent/mortgage, rather than being responsible for payments above and beyond your own living expenses. We'll be doing this ourselves shortly as all of our finances are tied into a major commercial development I'm working on. The rehab we're looking at isn't in that bad of shape, but a little cosmetic work nights and weekends and we can resell it for at least 10-20% more than we paid for it in about a year. We could do this in a much shorter timeline, we're just planning on building our "million dollar home" once the commercial deal comes thru, so the year works well with that completion. If you're something of a free spirit, moving every few months might seem like fun ... at least until you DO develop that cushion.
Good Luck!
thestudentisready,
You've received good advice. Please understand your situation matches that of first-time home buyers: Whether to save for a down-payment or buy nearly no money down. Two years later the "cash reserves" persons see their funds creeping forward, however the no money down buyers are trading up.
The answer is to buy value, nearly no money down. Economics is another way to say "universal laws of cause and effect." Economics say 35% taxes, 5% inflation, and 8% sales tax on every single item you every buy EXCEPT when you use a promissory note as a portion of your purchase, and you then get 100% exchange value for it. Add in gas prices.
You have about 48 cents for every dollar earned, BEFORE you start paying for insurance, clothes, your residence, your car, and food. This must be dealt with completely, by you and other wealth-builders. Building cash reserves is difficult, but not impossible. Certainly do not fritter away your 48 cents on comfort drinks several times each day.
But building equity is better, getting in with notes better, getting deeds better, lease-optioning to others, better. Your effect (results) change now because your cause (getting in) price is different.
Get into properties with any value, and learn to spot that value. Remember, please, that value always is what other will pay. That is all the types of people, and there are more minimum wages earners than doctors.
You inspire me, and I know you will be successful.
Do it.
Alan
That's kind of what I'm getting at. I realize I'll need to have access one way or another to at least a couple month's holding costs before I can count on getting option consideration or dp$ in my pocket.
I also recently turned down a 6fig salary. I know most people would think I'm crazy for that when I'm just getting over a prolonged illness that wiped me out and looking for short-term cash, but it's a time vs. $ issue. I gave it a lot of thought because it's on a W2 and that would help me building credit lines in the short term. However, it would also be 80 hrs a week, all told... and I doubt I'd get any REI off the ground in the next year on that schedule.
Il n'ya que la provisoir qui dure... It is ONLY the temporary that endures.
Instead, I think I'm going to take a contracted sales position (1099) that's all comission, pays a little less than half, but takes 25hrs/week. Again, time vs. $. Wage-earning to me is a losing battle because it's NEVER worth the time invested in the long-run.
In the short-term, though... the impression I'm getting is that I'll need to at least have access to $1000 or so in Uhaul $, and a couple months' holding costs. I'd hate to lose a $25k deal over a handful of seed $. Sound about right?
You're looking for different points of view, so I thought I'd jump in. In addition to that phrase about the temporary enduring, the French also have a much-quoted phrase--what doesn't kill you makes you stronger.
What I have read in your posts is that your financial situation hasn't killed you (but it has burned you a little); you are not risk-adverse; and you don't always play by the rules. To me, that sounds like a REI.
I agree with what everyone has told you, but I'm going to take the touchy-feely route and say that your questions sound more like a matter of working through your fears, than a matter of cash reserves.
Decide what you want to do and then do it. Simplistic? Yes. Insensitive? I hope not. But by looking at the number of your TCI posts, you've been around TCI for a while and I'm sure you've read about folks who've done very creative and profitable deals with little or no money/credit/experience.
So if you want to bird dog, start right now looking for investors who needs bird dogs. If you want to dive right into sub2s, start looking for that sub2 deal that fits with your current financial situation.
And when you take action, know that there are tons of supportive and skilled people at TCI who will offer advice and motivation.
Bon chance! Good luck!
Amelia
You're a smart cookie, Amelia (sp?)
Yeah... I'm trying to figure a number of things out simultaneously. I've really only been ACTIVE on this board for a little over 2 weeks, though... so I'm still in the gameplanning phase... and trying to be realistic. Also, I've yet to read or see any course, book, etc... so I've got some homework ahead of me, and I need to familiarize myself with the forms (which I've never seen as I've never bought or sold a house).
Honestly, I'd have to say that sub2 sounds like... well... I don't know what the deal was BEFORE sliced bread, but...
Anyway, I'm still trying to figure out a lot of other things, like tax strategy, having multiple exits ready if possible, etc.... I've found in most businesses, there are people who charge ahead and come out losers because they didn't plan for the tax hits... I'd assume it's the same here. The differences in strategy can have profound effects. It may not seem like a big deal to pay an EXTRA chunk in taxes here and there, but that's $ that would have been highly leveraged and reinvested, so... tick tock.
...and as far as trying to be realistic, I guess I should toss in another $1k or so for any quick clean-ups that need to be done, advertising, rei club memberships, etc.
I have to agree with everyone here. You can purchase property with little or no money down, but you can't purchase every deal like that. Some situations lean themselves toward subject2, others toward short sales. If you don't have sufficient cash or credit to push through conventional financing, you limit the deals you can do.
As far as your concerns on holding costs, they will always be more than you think they will be. I had a home that I was trying to sell through the MLS at 90% of what it should sell for and it took four months. I sold another house a few months later for probably 110% of what it should have sold for in 4 days! The reason for the cash reserves are to bridge unknown gaps. I don't have a crystal ball to tell the future and I doubt you do either (We'd just play the lottery if we did, no?). Another factor is the lease option you plan to receive. I have had no luck getting any option money in dallas, aside from maybe a month or two in rent. This is very area dependant and you need to reserach your area first. This isn't money you can count 100% on, so you need to be self sufficient without it.
-Chris
[addsig]
Hmm... OK, Chris.
Good point about the varying levels of option $. I can't go a few blocks without tripping over a lease purchase sign here. Aside from the obvious of asking other investors in the area, any other clues I should look for to try to guage this?
Your local investors should be the best information source. I wish I would have asked before I gave it a try
-Chris
[addsig]
as far as tax planning...
Don't worry too much if you're going to flip the cash back into RE.
If you want to live off some of it, you might want to find the best way to get the cash out.
I just purchased a single family home for a investment with no reserves. But, I got my reserves out of the deal. I first had a home inspection done which cost 235 bucks. then the inspector came back with all that was wrong with the house(he was so picky even telling me there was a birds nest in the attic that needed to be removed). so I then went to the seller and raised the selling price by 6k and said I needed 6k at closing for the list of repairs and I wanted them to pay closing costs. they agreed and I will use 3k to fix the things that "have" to be fixed and hold on to the other 3k for reserves. I know 3k is not a lot of reserves but this is just a 60k house that has new paint, roof, furnace, and some other recent upgades. this is my first deal and I really dont like the idea of going in to my first deal with nothing in the bank to help in a emergency. plus if worse comes to worse I have credit cards. you could try what I did to get some reserves, investors do it all the time. good luck.
Ok... good info. Could you share a little about the type of financing, what you needed to qualify, financing details, etc?
I have a middle credit score of around 700. I got a 95 percent ltv loan for a single family home that was actually called a "second home". my debt to income ratio was ok, cant remember what is required but mine was ok. The type of loan I got is called a Libor loan. it is interest only for the first 10 years and is a variable rate. its at 3.5 percent and has a cap of 5.5 percent. so bottom line is I got a loan with 5 percent down and got 6k back at closing and my payment for this 60k house is going to be 275 a month taxes, ins, everything. I am going to rent it out for 650 to 700 a month. because I am just getting in to investing my main concern right now is cash flow. you can pm me if you need the name of the lender I used or you can just mention that loan program to a lender you know and I'm sure they will know about it. good luck.
I am in a similar situation. I am very new to the world of REI and I
see great profit potential here. However, my problem is no money or
credit at this time. My initial hopes were to start with wholesale
deals to build up some working cash. Unfortunately, I have been having
a difficult time finding investor buyers that will pay anything over
20-30% of ARV/FMV. That leaves very little profit in the deal for me
unless I can "steal" the property.
Three weeks ago, a potential solution to my cash dilemma came my way.
I had signed up for a beginners seminar sponsored by my local REIA.
When I received my course materials in the mail several days before the
seminar, it turned out someone made a mistake and sent me the worng
package. Instead of the newbie materials I was supposed to get, I got
an advanced course on Private Money. Since I had to wait until the day
of the seminar to swap the materials and I am thirsty for knowledge, I
decided to listen to the course. Although it was geared to people who
have a track record with 6-12 deals, I found it very informative.
Basically, private lenders fall between conventional lenders and hard
money lenders. The investor secures funds from private individuals at a
6-10% fixed rate with no up front points or junk fees. Private lenders
can be anyone with money available who desires to earn more than bank
rates and/or who has lost confidence in the more risky investments like
the stock market. This can even be set up where the lenders earnings
are tax free through a self directed IRA.
The investor can get up to 70% of ARV/FMV at a fixed interest rate
usually amatorized over 30 years with a balloon at some point within 5
years. Another benefit with private lenders is their ability to
provide funds within a few days as opposed to a few months with
conventional financing. And like hardmoney lenders, personal credit is
not a factor due to the loan being secured by real estate. To make it
even more appealing to the lender, you file a quit claim deed in escrow
so the lender does not even have to file foreclosure in the event you
do not pay. You can even make work out a deal with the lender to defer
payments for a period of time while you do the rehab work. That is
even more profitable for the lender because of compound interest.
After reading your posts in this thread it occured to me that this
might be something for you to consider. You probably already know
quite a few potential private lenders from your past business dealings,
or you can goto your local REIA group and ask around. That is what I
have been doing, and I have already found several. Once you have a
track record in REI, you can even hold a private lender seminar and
raise $1 million in an afternoon.
I know my two paragraph summary of 12 audio CD's and a 50+ page book
written two hours past my bedtime does little justice for the topic,
but I no longer have the materials to bring up key points. However,
this is one course I will definately buy after my first deal. I am not
sure if I am allowed to post the information on where you can obtain
this course yourself, so if you want to know, pm me and I will give you
the contact information.