Investing in Real Estate

[Ak2786]

Bought my house in Sarasota, FL 3 years ago for 280,000 and now its selling for 530,000, pretty nice investment.

[MrDuke]

I'm halfway through Kiyosaki's book lol.    Ever toyed with the idea of vending machines? Anyhow, Im charged up.  Just need a little time to be "ready" financially to start buying REAL assets.

<{POST_SNAPBACK}>

 

 

He calls his philosophy the "rat race", I call it the financial matrix...it's all the same--he's just a lot richer than me.

His Rich Dad series is excellent, as well as his CASHFLOW board game concept. Both are tools to open your eyes to your financial position.

 

If you read the very first book (Rich Dad/Poor Dad) and you don't feel like taking control of your financial life in the first 10 pages, then stay in the matrix.

 

Always keep in mind what your strategies and goals are. It's not enough to say I'm saving for my first rental property. You should have an actual date. ON AUGUST 1ST, 2005 I WILL HAVE MY FIRST RENTAL PROPERTY. If you don't have it by then you better have reasons why you don't and have another date established. If you don't have firm goals established, you are almost always lying to yourself. Weightloss, exercise, debt, it doesn't matter. You gotta have a goal.

[Preacher]

indEEd

[Bubblegum Bandit]

If you don't have firm goals established, you are almost always lying to yourself. Weightloss, exercise, debt, it doesn't matter. You gotta have a goal.

 

Are you calling me fat?

 

Your "go global" speech is captivating Duke, but I'm not sure I want to start in this market. The housing here is incredibly rediculous. I like your idea of a 35k to 40k ceiling on properties, but you'll be lucky to find A, as in 1, at that price around here. I did a quick search back home and there are over 200. I did discuss the idea with my wife, and she's definately on board.

 

So....I need to do some research. I figure I have two years to learn before I move. Then I will set my goal to have my first rental property within a year of settling down. Although, I may also stay in your global mind set and keep the house we live in now. By the time we move I should have enough equity in it to get started.

 

Anyway, I skimmed back through the topic and didn't find any, but do you have suggestions for reading for someone who is really excited about the process but a bit overwhelmed on where to start? I notice this author goot was speaking about, should I start with "Rich Dad/Poor Dad" or something else?

[MrDuke]

Are you calling me fat?

 

Your "go global" speech is captivating Duke, but I'm not sure I want to start in this market.  The housing here is incredibly rediculous.  I like your idea of a 35k to 40k ceiling on properties, but you'll be lucky to find A, as in 1, at that price around here.  I did a quick search back home and there are over 200.  I did discuss the idea with my wife, and she's definately on board.

 

Just saw this and I'm in a hurry so I'm only grabbing one part of it.

 

Don't be a nay-sayer just yet...expand your sight and thinking before you say "no". A hot market is EXACTLY where you want to be. Search harder (the MLS on realtor.com doesn't count). Find an aggressive RE agent, contact REO bank agents, scan the newspaper for deaths or stories where factories let 400 people go. Take the trivial information you used to let fly by and analyze it. Instead of a looking at long term rentals, maybe you flip a property or two before you leave.

 

You may not find a property for 35K because my 35K ceiling applies to the Akron, Ohio market. Your ceiling may be $50K. If the rent supports the mtg/taxes/ins plus $100+ then it's a doable deal. If you're flipping, the sky's the limit as far as startup price.

 

RD/PD is an excellent starting book.

 

More later...

[gOOters]

Im already thinkin' bout the college town where I got mah undergradumacation. Its about 3 hours away and fooseball season would give me an excuse to take a day off and cruise by the houses on a Monday or whatever.

[Bubblegum Bandit]

Ok, been reading some websites and such and the wheels are turning. I'm curious Duke, in your "team," are you the only actual "owner" of the properties from the tax side of things?

 

I'm thinking along this team concept to make me stronger. But curious how you split things up. I can do almost all repairs. I have one person who could be the main financial backer and another who can do the electrical work. The team concept might be great in this instance, just curious how things CAN be divied up if I were to go to these guys and pitch the idea.

[MrDuke]

You don't have to make your biz relationship a partnership. You could very easily say YOU are the main man and any partner has minimal input. However, I've found that being a part of the vision makes people work harder. That's why I use a team approach.

 

My scenario:

 

The biz agreement has the other 2 partners (3 total) buying an equal amount of real estate which is quit claim deeded over to my existing LLC. Once they purchase an equivalent amount, I will sell them an equivalent amount of company stock, making them equal partners.

Ex: I invested $15K so each partner needs to invest $15K of his/her own money to become an equal partner. Afterwards, they will receive enough stock to become an equal partner.

 

Any work they do on a new property entitles them to a percentage of the net (keyword "net") monthly profit. If the company decides to sell the property for whatever reason, they will receive an appropriate amount of the profits if they are fully vested partners. If they are not, they do not receive any profits from the sale.

Currently, neither partner has contributed an equal amount so neither has rights to the profits should the company (me) choose to sell a property. Also, I have full tax rights because they have no ownership in the company.

 

Financial backing is the name of the game. Currently, I'm studying the options market. I can make great money by selling the options outright, but if I could find a financial backer to actually buy and sell the associated stock, it becomes much more lucrative. You just have to find someone with $10 million burning a hole in their pocket. Seems like a lot and it is. But why limit yourself? You never know what's possible so don't sell yourself short.

 

You sound like you're in my shoes. I can do just about any job, but I don't have the time to do it. My time is more profitable in other areas. Although, in the last month I've spent a great deal of time putting the sweat equity into a property (Thanks Clue!!).

 

Keep reading and networking. Every major city has a real estate investor group so look them up and listen. They're usually big on land contracts so brush up on that too. Basically, a land contract turns the seller into the bank which keeps your debt/income ratio the same. After so many years (3-20) the property has increased in value to the point that you can refinance the property under the 80% LTV line and can pay off the seller. You just financed a property and circumvented that nasty 40% debt/income ratio!!!!

 

Think creatively and expand your reality!

[MrDuke]

Just so you know it's not always roses...

 

I just received a call from a furious tenant stating the kids behind her backyard stole her daughter's bike. She called the police and they managed to get a wheel back (yes, 1 wheel). Afterwards the kids harassed her and her daughter.

 

What do you do?

 

Remember when I said you need to be able to say "NO"? Well, this is similar. I said I was sorry it happened but this should be handled by the police, not the landlord. I said she should call the police back if she has any more trouble.

 

She wasn't very happy.

 

I'm not 18 anymore--no more "cousin Vinny", vigilante justice...

[gOOters]

Any advice if I want to act like a bank and sell the house I am living in now??

 

The way I see it, if I run a background/credit check and require a 15-20% cash deposit, the risks to me would be minimal.

 

This would give the wife and I a chance to mave closer to my new job (and hers). Also, I really like the idea of making the payment money and the interest money.

 

I would probably wait 2 or 3 years for the home values to go up in my area before doing this...maybe rent in the interim.

 

Any thoughts Dukey?? How dangerous would that be for me? I would hope to attract a good buyer who might have some kind of crud in their background, like a layoff or divorce and that would make it hard for them to get their own financing.

[MrDuke]

This is a land contract.

 

It is beneficial to you because if the buyer defaults for any reason, anything paid to you is yours to keep. Some people think that's bad because the deal fell through and you have to start all over. My thought is: So what? You just got paid all that extra cash and you still have your house!

 

Make sure you get your lawyer involved in drafting the contract for your own protection. I've seen situations where the buyer does not maintain the property, defaults on the contract and leaves the seller with a large repair bill.

 

If you think the property value will increase significantly in the next 3 years or so, I would not recommend doing a land contract as you are locking in the price of the home. I would put up with renting for 3 years and then sell the home outright. If you plan on moving out of the area, turn it over to a property manager.

[Preacher]

Personally I would sy that your best bet would be to rent it out in the interim. Think about it, the value of your home goes up year after year and the renter is paying your payment plus a little extra. Depending on the rates in your area and the quality of your nieghborhood, you should be able to find a decent family to move in and make the payments for you. Plus if they really like the house and you do want to unload it. After thier lease is up in a year or 3, you could do a "Lease to Own" deal. This is popular to do for people interested in money because the price of your house is determined at max value and you sell it while retaining all the ownership till it's paid in full. Basically it can work 2 ways:

1. You can apply the entire amount they give you each month toward the final cost of the home (Don't forget the interest)

 

2. You can charge let's say $700 per month and $500 per month goes towards the purchse of the home and the $200 is your security blanket in case they bail out. Make sure you know what you are doing or consult a lawyer before you have them sign anything (never hurts to spend a little money on legal advice and could save you a whole bunch in the end) I have considered doing this as there is a ton of people who want to own thier own place, but have credit problems. In this scenerio if they default on the loan, it works the same as if they ditch out on rent - you get everything and they get nothing. You can then choose to rent, lease or sell the house again.

 

Some view option 2 as less than honourable but if you tell the people upfront everything and make sure they understand then I feel it's a fair business practice. Personally I would never lease to buy a home because I would not want that much of my money to be flushed down the drain, however some people have no sense when it comes to money, just look at the chia pet sales at christmas.

[gOOters]

Yeah, I've got no problem booting out someone who cant pay their bills...business is business. And yes, Duke, to be honest, a default on a land contract is nothing but good news for me...a win-win. I think the key would be to get a large cash down payment to discourage trashing the property and to protect me in case the buyer defaults.

 

Of COURSE a watertight contract on this kind of deal is a must!!

 

I will rent until the home values rise or just try and live in it for a few more years. The commute with rising gas prices are concerning my wife (we each drive to Dallas from FW) but I am really trying to make her see long term on this.

[MrDuke]

Show her the appreciation rates for the FW area over the last couple of years.

That should help your cause.

I was there a while ago (5yrs) and I believe that's a strong area so I'd sit on it, put up with being a landlord for a while and (sigh) collect a check every month. Oh, the agony!!

 

Keep in mind the tax laws re: real estate sales. The general rule is that you have to stay in a home at least 2 years to qualify for the tax free benefit. Marriage and price come into play--consult your lawyer on this.

 

There's nothing like being a landlord, Goot! It's fun until your first problem goes nuclear in your face...

[SomeThing Clever]

Where I live (Orange County, California) property is ridiuclousy high (half a million usually).

 

How would I go about establishing myself and how much you think I would need starting out?

 

Is it advisable look into investing into properties in other states if its cheaper? If I do end up with properties in other states how should I go about managing them?

[Preacher]

Well if you wanted to go out of state you need either a competant person that you trust to help you or a family member that you make all the decisions for.

 

Missouri is crazy for it's cheap real estate. I bought my 5br home on 1/2 acre with 2 car garage and awesome view(can see two miles to the river with nothing but fields and trees out the back door) for $26,900. My mom just purchased two rentals in a town 13 miles away from me for $10,000 each (one 2br one single br) She has the one br rented for $400 per month and expects to get $550 for the 2br. She is also selling a property she picked up for $23,000 for the 5 acres for $57,000 an acre (she has had it for 10 years though) because a new country club opened across the street and so the golf greens can be seen from the window.

 

I suppose if someone you trust lives in another state and is willing to put up with the headaches of working with your renters for a fee, you could go that route. As Duke knows it can be a major hastle dealing through middle men though. If your guy stops collecting without telling you the renters won't have 2 months rent ready to go the next month and if he neglects to do cursory inspections from time to time you may find out that the sink has been leaking for a year and now you need to replace the whole floor and set of cabinets (this happened to me when I rented my house while at Bible college). Whatever you decide work with people you trust even if the money is a little less. Lower prices sometimes are only an indication of a future nightmare.

[MrDuke]

Ditto.

 

 

I recommend using a property manager for out of state rentals, but not if it's your first one. You gotta have a few properties under your belt to offset the cost of using one.

 

A few thoughts:

 

- Move to a less expensive area

- Consider buying a forclosure/rehabber and get some roomies to offset the costs until you can sell it.

- Network to find partners (capital). I'm sure there are others thinking the exact same thing you are. Think of the property as a mutual fund and you all own shares/units of it. Since capital is your problem, the first few properties should be flipped. Once you have done a few of these, you should each have enough $$ to become independent, although why would you want to be? Partnerships can be good.

 

 

-Move to Missouri!

[Preacher]

-Move to Missouri!

<{POST_SNAPBACK}>

 

I've seen other places with cheap homes but here they are increasing in value at an average of 17-35% per year. I purchased my house for $26,900 (it was valued at the time at around $52,000 this was just last year in September) and in less than one year I got a current market value at around $69,800. Not every purchase goes that way, I bought mine as a bank repo that needed work. I won't resell it until the value crosses the $100,000 mark and then I'll just reinvest in more properties. I am currently looking at a 3br house that's listed at $22,000 that as sson as another of my turnover properties sells I'll have the cash to buy