MrDuke June 30, 2005 Share MrDuke Member June 30, 2005 Shazz, You said you had some questions about investing in real estate so I thought we could discuss it openly so others might learn something. ** I am by no means an expert. ** We (my wife and I) acquired our financial knowledge and business philosophy from various sources and by learning from our mistakes. If you never make mistakes, you will never succeed. Duke Link to comment Share on other sites More sharing options...
gOOters June 30, 2005 Share gOOters Member June 30, 2005 im listening... Link to comment Share on other sites More sharing options...
stutters June 30, 2005 Share stutters GC Alumni June 30, 2005 me too! Link to comment Share on other sites More sharing options...
Mini_Me June 30, 2005 Share Mini_Me GC Founder June 30, 2005 me 3 ... Link to comment Share on other sites More sharing options...
MrDuke June 30, 2005 Author Share MrDuke Member June 30, 2005 Umm...the keyword is 'Questions'. "What is a g00ter?" is a question. 'G00ter is a sick individual' is not. Thus concludes lesson 1. Link to comment Share on other sites More sharing options...
VooDooPC June 30, 2005 Share VooDooPC Member June 30, 2005 (edited) I'm learning already! What was Shazz's question? Maybe he could start us off. Edited June 30, 2005 by VooDooPC Link to comment Share on other sites More sharing options...
MrDuke June 30, 2005 Author Share MrDuke Member June 30, 2005 I'm learning already! What was Shazz's question? Maybe he could start us off. <{POST_SNAPBACK}> Shazz was talking on gamechat (no, really) and said he wanted to ask me a few questions about it. I said we'd talk later and we never have so I thought we could open up a topic on it. Link to comment Share on other sites More sharing options...
gOOters June 30, 2005 Share gOOters Member June 30, 2005 Ok, so what is the answer? Link to comment Share on other sites More sharing options...
Mini_Me June 30, 2005 Share Mini_Me GC Founder June 30, 2005 Question 1: Do I need cash to put down for a 2nd property or investment property? Link to comment Share on other sites More sharing options...
MrDuke June 30, 2005 Author Share MrDuke Member June 30, 2005 Question 1: Do I need cash to put down for a 2nd property or investment property? <{POST_SNAPBACK}> It depends on how creative you make the deal and/or where your credit is. First thought- tap the equity in your home. Second thought: No money down (nmd) deals Nmd deals, which made Carlton S. rich and famous, are a double-edged sword. BTW- Carlton S's is making money by selling information, not real estate--think about it. If you work out a nmd deal, you have cash to do another deal but your debt/income ratio is pushed higher. Using traditional lenders, you are held to 40%. I use lenders that allow me to go above that ceiling but even they have limits. If you continue to buy rentals ( why would you stop?), that will come into play. Also, when utilizing nmd deals, 99% of the time you end up over-paying for that property. You really make your money in the buying and selling of property--collecting montly rent just gives you some cashflow. If you buy at an inflated price regardless of the reason, you are cutting into your profits-if there are any profits to be had--when you sell. I prefer no more than 5% down to buy a property. You may want to look into doing a land contract if you want to do a nmd deal or you can ask the seller to pay a percentage of the closing costs to reduce your out of pocket costs. Link to comment Share on other sites More sharing options...
Bubblegum Bandit June 30, 2005 Share Bubblegum Bandit Member June 30, 2005 Oh, Oh, I got one. Say you wanted to move into a new house. Rather than sell the one you are currently in, you rent it to receive income. Say I had enough equity in that house to put 15% down on my new house. Do they still see your liability in that house the same? IE, I still owe money on it, so I would assume that is still considered in my debt, but do they also count the monthly rent payments as income and thus negate the negative effect on the debt/income ratio? I'm curious how that situation might effect/affect your ability to get a loan on your new house. Link to comment Share on other sites More sharing options...
MrDuke June 30, 2005 Author Share MrDuke Member June 30, 2005 Oh, Oh, I got one. Say you wanted to move into a new house. Rather than sell the one you are currently in, you rent it to receive income. Say I had enough equity in that house to put 15% down on my new house. Do they still see your liability in that house the same? IE, I still owe money on it, so I would assume that is still considered in my debt, but do they also count the monthly rent payments as income and thus negate the negative effect on the debt/income ratio? I'm curious how that situation might effect/affect your ability to get a loan on your new house. <{POST_SNAPBACK}> When you say 'they' I assume you mean traditional banks. That's iffy. In Ohio and using investor friendly lenders, you can count 70% of your rental income as income. Your D/I ratio won't climb as quick. It's a good move. Here's an example of what we did with one of our properties: House appraised at 40K, listed at 36K. We bought at 33K with $3k down from our home equity line. The MTG/taxes/ins costs us $330 ($30 of it is PMI which will be off soon) The rent is $625 Our rough profit is $250/month. Keep in mind that $250 is tax free money. You get so many write offs that you actually show a LOSS even though you made money. In fact, the losses pass through and I get to show those on personal income taxes. Keep in mind teh property continues to appreciate in value all while your mortage is decreasing. Every few years you can tap the equity (tax free money) or you could do a "1031" which allows you to sell the home and buy a new one without paying taxes. If in 3 years this property sells for 45K, the $15K profit can be used to buy a larger property ($15,000 is 5% of a $300,000 property). The rental income for that $300,000 property should pay for itself...or you don't do the deal. Link to comment Share on other sites More sharing options...
Preacher June 30, 2005 Share Preacher Member June 30, 2005 I purchased my home by refinancing the church building that I own. I paid $27,300 for my 4br house with 2 car garage because it was a repo. When looking to purchase rental property or just wanting the bottom dollar best deal it is never a good idea to just trust your real Estate Agent. Real Estate people make more money for the house that costs you more than they do by saving you money so keep that in mind when doing you search. I like the website www.realtor.com to do research. I have actually found my church building and the two homes I have bought on that site. My parents just purchased a one and a two bedroom home for $10,000 each to use as rentals. The average rent for a one is around $300 and for a two br is around $400 in the town where they bought it. They paid cash but if they were to have refinanced the house they live in the payment for the two together is less than the rent for the one br house. Deals like this are not as easy to find as a house listed 10% below market value but if you are patient and smart you can find these types of deals. My current home is a bank forclosure which is another place to look for homes. Find the larger lenders and then call them about forclosure sales or listed properties that they own. Banks deal in money and hate to have the properties so quite often they will accept pennies on the dollar for homes. Link to comment Share on other sites More sharing options...
MrDuke June 30, 2005 Author Share MrDuke Member June 30, 2005 I see a lot of hits but few questions so I throw a little blurb out there on my financial philosophy to get people talking. We've all seen the Matrix, right? Good movie. I truly believe there is a financial matrix that we're all a part of. We are all taught at an early age to go to school, get a good job, work hard, save money and retire (read R. Kiyosaki). However, they don't teach you how to make money work for you. They don't teach you how to read a financial statement, balance sheet,etc. They don't teach you how to invest, how to make money work for you exponentially. They teach you to be a worker. We're taught the 1:1 ratio of money. You earn it, you pay taxes and you spend it. The system works because 99% of the people are workers. Once you get the chance to see how money can be leveraged and used to your advantage, you feel stupid. You don't want to be the worker anymore. You earn it, YOU LEVERAGE IT, you spend it, and THEN you pay taxes. I feel that real estate is the first step to making your money work for you. That's why I'm focused on residential real estate...and hopefully commercial RE in the near future. Not too long ago, my life strategy was to buy the biggest house I could buy, dump money into my retirement account and wait until I was 60. If that is similar to your life strategy you might want to expand your context, your abilities. You might want to consider "taking the red pill". That is my philosophy. My strategy is a bit more complex. It's definitely scary, no doubt. But as I said before, if you never fail you will never succeed. Still waiting for Shazz.... Link to comment Share on other sites More sharing options...
MrDuke June 30, 2005 Author Share MrDuke Member June 30, 2005 I purchased my home by refinancing the church building that I own. I paid $27,300 for my 4br house with 2 car garage because it was a repo. When looking to purchase rental property or just wanting the bottom dollar best deal it is never a good idea to just trust your real Estate Agent. Real Estate people make more money for the house that costs you more than they do by saving you money so keep that in mind when doing you search. I like the website www.realtor.com to do research. I have actually found my church building and the two homes I have bought on that site. My parents just purchased a one and a two bedroom home for $10,000 each to use as rentals. The average rent for a one is around $300 and for a two br is around $400 in the town where they bought it. They paid cash but if they were to have refinanced the house they live in the payment for the two together is less than the rent for the one br house. Deals like this are not as easy to find as a house listed 10% below market value but if you are patient and smart you can find these types of deals. My current home is a bank forclosure which is another place to look for homes. Find the larger lenders and then call them about forclosure sales or listed properties that they own. Banks deal in money and hate to have the properties so quite often they will accept pennies on the dollar for homes. <{POST_SNAPBACK}> Preach is right...I don't like to use RE agents, but I will if I need to. Any property that has made it into the MLS is almost never a great deal. The great deals happen behind the scenes. Forclosures are cool. I've called banks on forclosed properties that they didn't even know they owned yet. I remember arguing with them saying, "Yes, you DO own that property and I want to buy it!" Needless to say, they wouldn't let me buy it. Diligence while searching is the key to finding good properties and not getting burned. That and knowing what to look for while inspecting. Old homes with lead based paint are evil....pure evil. Link to comment Share on other sites More sharing options...
Preacher June 30, 2005 Share Preacher Member June 30, 2005 Also you can sometimes save a few $$ by going to the Listing Agent (Real Estate person who has listed the property for sale) and asking for a discount on the commision fees if you use them as the purchasing agent (Real Estate individual who you buy through) Link to comment Share on other sites More sharing options...
gOOters July 1, 2005 Share gOOters Member July 1, 2005 Wow Duke...that Matrix post REALLY hit home for me. That IS/HAS BEEN my life's plan. ..HOWEVER: Just like Neo, I have always gravitated toward the idea of "stepping out" a little financially, because I so often see people who are making their money really work for them. I want to be one of those people. Really. I think I am at the perfect age/stage to begin this, at least outlining a plan. Link to comment Share on other sites More sharing options...
Gond July 1, 2005 Share Gond Member July 1, 2005 How about posting up what you need to close a deal without a realtor. I've always used a realtor cause I just don't know nor have the time to deal with learning. Totally agree they are overhead but they do simplify things. Link to comment Share on other sites More sharing options...
Shazz July 1, 2005 Share Shazz Member July 1, 2005 I am very sorry fellas. We had a thunderstorm and our power went out almost allllllllll day. So the wifey, kid and I went out shopping...ALLLL DAY! lol. MrDuke! These are some fantastic post!! I have really thought about buying rental property and didn't even realize that you had invested in this until I was talking to Clueless. Is there a way you can start off buy buying land and using that for bank leverage? I was thinking about starting off buy buying housing development lots, then working my way up to rental homes. The lots I have been looking at are around 5k to 10k. Or I was thinking about buying 40 acres of land and working out lots and such that way. I am not that savy at home value property by just looking at it. I would have to do some serious research on a home value so I don't get "had". however looking at lots in developments, I can see the future of the property value. So what is your thoughts about this way of thinking. Please be critical...cause I don't like losing money like the next guy. You also seemed to be very knowledge in other peoples success. What books or "videos" have you invested in? have they been those "get rich" commercials on TV? Again, sry it took me so long to post...my power is finally on! Link to comment Share on other sites More sharing options...
Shazz July 1, 2005 Share Shazz Member July 1, 2005 (edited) Gond. The only setback I see for using a realtor is that they do take a chunk out of your investment. If I would have built my home myself without a realtor I could have knocked 30,000.00 off of my home. But since I bought a brand new home already built through a realtor I paid that extra 30,000.00 to her and the powers that be. Kindof made me sick when I noticed that....but hey....I will get it back if I sell. Cause my home is valued more than the price I paid. EDIT: Again, this has been my personal experience with realtor's. Someone might be able to shine some light for me about them in a better way. Edited July 1, 2005 by §hažžž Link to comment Share on other sites More sharing options...
MrDuke July 1, 2005 Author Share MrDuke Member July 1, 2005 I just breezed the last few posts and I'll comment on RE agents for now...the rest tomorrow. Agents are also double edged swords. I settled on 2 agents but I reserve the right to use as many or as few as I choose. One of the agents is a mentor to my wife and I. In 10 years she has acquired 60 properties (I double checked the court records...64 to be exact). At $200/month/unit profit while carrying a mtg or $400/unit/month if the property has no mortgage...well...you can do the math. Her last comment that was inspiring was, "I have $300,000 in the bank and my husband and I want to buy something BIG (a multi unit property)". However, I don't always use them... it depends on the deal. Unless you have an intimate business relationship, RE agents don't do a whole lot when you want to buy a property. A typical RE agent pulls info from the MLS and lets you chose 10 houses to look at---not a lot of work for a few thousand dollars. Selling agents work a bit harder. Regardless, you don't need one to find and purchase a property. It's easy to buy a home yourself. Selling is a little harder because of advertising but still not too difficult. For a step by step process on completing a sale from purchase agreement to closing, contact a local title company in your state. They'll be happy to teach you because they want the business. I'm tired...more tomorrow. Link to comment Share on other sites More sharing options...
Shazz July 1, 2005 Share Shazz Member July 1, 2005 you are already saving me money....don't have to watch those commercials on TV and think about buyin a 12 step DVD to real estate. Have at it Duke....im listening! Link to comment Share on other sites More sharing options...
Preacher July 1, 2005 Share Preacher Member July 1, 2005 Thats all true and remember like anything the more you know the more you can make because you won't be fooled. Also shop around for title companies and RE agents, put the pressure on them to find out exactly what they charge. You can save a few hundred on closing just by getting with the right title company. I have always been smart but my brother used the sister of his Real Estate Agent and got raked over the coals in fees. He's 16 years older than me and thought he knew better than his little bro and I got to laugh at him a little lol Link to comment Share on other sites More sharing options...
MrDuke July 1, 2005 Author Share MrDuke Member July 1, 2005 you are already saving me money....don't have to watch those commercials on TV and think about buyin a 12 step DVD to real estate. Have at it Duke....im listening! <{POST_SNAPBACK}> If you're just getting started, I would recommend 1) Reading 'Rich Dad/Poor Dad' by Robert Kiyosaki. 2) Contact a local title company for pricing and step-by-step instructions to the process 3) Find a real estate lawyer who owns rentals (VERY IMPORTANT) 4) Find a couple of RE agents who own rentals (you might use them) 5) Find a CPA who owns rentals (see the trend?) that knows how to maximize RE deductions. (VERY IMPORTANT) 6) Start networking to find tradesmen who can work for you if you don't know how to fix things or don't feel like putting the 'sweat equity' in. 7) Go to the library/Borders/B&N and study. Read everything you can. The late night infomercials and RE seminars have some benefit. If you know someone who bought them, ask to borrow them. It took us a couple of months of reading, calling people, setting things up, etc before we even started looking at property. As a general rule, you will look at 50-100 properties before settling on just one. Surround yourself with knowledgeable people. Don't be afraid to pay someone for their skills (lawyers, CPAs, brokers). Let me know if you have any more questions in getting started. BTW--I did say lead based paint is evil, right? GL Shazz! Link to comment Share on other sites More sharing options...
gOOters July 1, 2005 Share gOOters Member July 1, 2005 1. How do you manage the properties? Especially down the road, when you might have a good number of properties and a full time job that you need to show up for? 2. Is the idea to keep the properties as rentals indefinately or just until you realize a significant increase in the house's value? 3. How do you ensure that you are going to get a renter into the houses? We will be in the position in a year or two to buy another house and keep the one that my wife and I live in. I STRONGLY suspect that our house will greatly appreciate within the next 5 years or so, but I do not want to carry that mortgage payment AND the high taxes for the area without knowing that I will have a renter in the house... Link to comment Share on other sites More sharing options...
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