sifer's Beginner's Guide to Real Estate Investing

[sifer]

Hello, this is a public announcement brought to you by Seifer, he has a few words for the fellow investors on sosuave.
*someone can be seen shining Seifer's right shoe*

Mr. Seifer started writing this because he saw many people wanting to get into real estate investing or are interested in it.

Seifer kept writing and writing and eventually got too far and sometime even out of topic.
Here's the on-track version that he feels can help inspire serious novice enter real estate investing.

Seifer advise that nothing here written is truly his because it wasn't his idea to begin with. Seifer once said, "ideas were always leeched from other people. We see the color blue and we vary it to purple as ours. Nothing is truly ours. What was once a wooden table was really a tree."

What you will be reading is a reality check from Seifer written based on his experience.

The humorous off-track version is coming soon!

Enjoy!
_____________________________________

Warning: If you're reading this, chances are, you are interested in becoming a real estate investor. Good, you're making a first step toward financial growth and understanding. Investing in real estate is a good way to start. When you get into real estate investing, for whatever reason it is, make sure it is NOT to find a magic pill. I cannot bear it knowing that one of you are starving because you thought REI will be your silver bullet to every money problem you have. It is NOT. I repeat, REI is NOT a silver bullet.

Ahem...

Let me just give one reason why real estate is the best investment one can make and let me just give one reason why real estate is the worst investment one can make.

But before I do, I must say this. Real estate is a business, treat is as such. Act professional, be professional, and give it your best. The good thing about this business is this, you don't have to wear a suit to get into REI, you don't have to impress anyone. I've seen people in urban apparel invest. I've seen people from the south that live in trailer park invest. All kind of people invest. Now then..

The CON first of course, the REI business is extremely competitive and tough. Much like a job, instead of fighting over to slave for an employer, you are slaving to trade for a building. It is VERY competitive that for many novice it is very hard to break into. Many things you must consider, that real estate investing is complicated because of the implications of reluctance from the sellers and other investors you will meet.

If you can stomach rejection, which is the biggest thing you will get in investing in this field, GREAT! I'm going to say this right now, most of you will give up just because it got too intensely competitive and tough to handle.
Much like Don Juan, you've had your moments of hesistation. Much like investing, you will have your moments of hesistation. You will wonder if you should buy the property or not because the numbers came out half half. You will wonder if this property will be your stepping stone foundation to your next property. You will wonder if this is enough for your dinner.

In REI, there are situations where the landlord gets hurt because the tenant doesn't pay. There are situations where the rehabber gets drowned because of holding all the costs, taxes, fix-up, materials, hiring, etcetc.

That's the bad side, extremely competitive and tough. I will explain more on why it's only getting tougher. This economic is becoming more socialist as we speak. I will elaborate more on this and how this is more of a socialist state than capitalist state that we were once. Now remember, socialism is NOT exactly bad nor is capitalism, but as an investor, businessmen and investors hate socialism, employees hate capitalism. Generally speaking anyway, either way, just understand first.

The good side, the PRO. This is easy, although the pro outweigh the con, don't rush.

This is a question someone asked me before, a very good question -
"Mr. Sife... How many dollars' worth of property can you buy with $100,000?"
When I first answered this question, I was thinking in terms of black and white. So I thought, "$100,000? What is this? A trick question?" My answer? $100,000 worth.
NO came smacking across my ears. "Mr. Sife, the answer is... none." WHAT?! "None?" That's right, said a real estate investor who has been investing most of his life, "This is because if you were to spend your own money, you lose your base. In all business, no matter what business it is, from retail to service to manufacturing, business should be spelt OPM. It's how Bill Gates and Warren Buffet got rich. OPM? Other people's money. It can be banker's, your friend's, family's, etcetc, but never your own. But let's say you BORROWED $100,000, how much dollars' worth? As high as you can! Let's pretend you bought a $1,000,000 property with $100,000 cash. That's 90% financing which is quite common. You now have an asset worth $1 million that would generate rental income for you. Buy it smart and you'll be the next Donald Trump."

Indeed, that's one of the many many good sides, OPM, which I may cover.

Now that I have said a good thing or two about it...
Let me talk about something that isn't covered a lot, that is, the history of real estate investing.
Like becoming a Don Juan, you must know yourself. Only until then, your enemies shall be revealed to you.
In becoming a Don Juan, the society's programming and media are usually the enemy. In REI, the gov't are usually the enemy. When I say enemy, I mean those who set standards. For example, if monopoly was real life, the game of monopoly, the player who makes the rule is usually your "enemy" because he can work with or against you.

 

[sifer]

Every year investing gets harder and more challenging, because of government setting new rules and what's worse is each state has different rules they play by. In fact, last year or so, some states has mandated that to stop people from flipping property because it was too profitable, far too profitable (some people can flip and earn up to $250,000 and many times more!), that in order to flip your property, the property must be held in the owner's name for 12 months.

12!!! A lot of flippers suddenly stopped putting dinners on their table, traditional flipping is gone. Real estate investor because of this, are losing their business because they have to lay off their entire team (which can be REIT or composed of other people with different professions, such as accountant, contractor, etcetc). Now that traditional flipping is gone, other form of investing in RE will be gone soon. I think I can already hear the gov't saying that all properties and deeds belong to the government now because it is the only way to "control the economy for the benefit of the people" as they always like to put.

And this is where I meant to say that the gov't each day is becoming more socialist. For those who don't know, socialism is basically the gov't (centralized mind you) that owns (plan and control) the economy. That means goods (in this case, buildings) are controlled by the gov't. This not only affect us investors, it affect businessowners as well in a great degree. Employees probably don't care. In a socialist state, there will be no Bill Gates or Warren Buffet because they cannot control their goods.

For those who don't believe me that the states may be becoming more socialist... here are some hints,

Sarah Brady on gun issues says...
Our task of creating a socialist America can only succeed when those who would resist us have been totally disarmed.

A letter written by FDR to Colonel House, November 21st, 1933
The real truth of the matter is, as you and I know, that a financial element in the larger centers has owned the government ever since the days of Andrew Jackson.

Council on Foreign Relations (CFR), James Warburg says...
We shall have world government whether or not you like it, by conquest or consent.

President of the National Audubon Society, Peter Berle says...
We reject the idea of private property.

Norman Thomas says...
The American people will never knowingly accept socialism, but in the name of liberalism they will adopt every fragment of the socialist program.

Wikipedia says...
Norman Thomas and Gus Hall, the U.S. Communist Party Candidate, both quit American politics, agreeing that the Republican and Democratic parties by 1970 had adopted every plank on the Communist/Socialist and they no longer had an alternate party platform on which to run.

Sadly, it is true. Back in the early 1960's and 1970's, people with common sense with absolutely no knowledge on how real estate itself work could still easily invest and profit immensely from it.

In 1986, the government reformed the tax laws in many ways, this caused appreciated properties to depreciate immediately at the time. And the new generation of investors found themselves in a deep hole.

By 1987, real estate industry started to decline at a considerable rate. It take longer to write taxes off for depreciable buildings, and limitations were imposed on deductions on passive investment losses.

Then capital gains, which every knowledgeable real estate investor would tell you about, that it took the hardest hit. Some may even argue its' completely obsolete. Robert G. Allen shall explain. Appear Robert G. Allen!

Robert G. Allen appears humbly before Sifer and speaks...
Ahem.

The 1986 reformation was particularly damaging. [...] Capital gains lost its special treatment and further depressed the real profit potential. And the new passive-loss rules were designed to prevent you from offsetting income from normal sources (salaries or investments in stocks and bonds) by expenses from passive sources such as real estate or limited partnerships. In other words, you could only use "passive losses" to offset "passive income," but not "regular income." To pass the "passive test," you had to "materially" participate in your business and satisfy tough criteria such as:

• You had to work in your business at least 500 hours per year (around 10 hours per week).
• If you worked less than 500 hours a year, you had to be the primary person involved, almost to the excluson of anyone else.
• If you put in at least 100 hours a year, it had to be more time than anyone else put in, including employees.

This kind of sophistry forced investors to look at real estate through different eyes. The old rules of writing off real estate losses against salaries and wages vanished into thin air.

Were there nothing left of value?

*sifer is seen sipping on orange juice*

In one way I can describe all of this in one small summary, before the 1960's, before the tax reform came in, wealth easily came from two commodity -

• Business
• Real Estate

Whoever knew how to run a business or invest in real estate dominated. After 1960's, the period and at the rate, real estate investing only gets harder and harder. There will be more people born each year, more people getting older and watching late-night shows, and going out there to compete for buildings against you. There will be some as obsessed as I am in REI and willing to do what it takes to mow down those who cross their path.

Not to mention, "no-down" techniques were actually common usage back then!

Today "no-down" is still being used by many investors, but not as easily nor common as before. Which is why today's "guru" capitalize on it. Before 1960's, one could go to the bank, talk to the manager, and shake their hands. The deal was sealed.

If you have read "The 7 Habits of Highly Effective People" by Stephen R. Covey, you would know in the first few chapters, people based their trust on the shake of a hand because people actually HAVE character back then. A handshake actually meant something.

You could walk into a bank and say something like "hello there, today I saw a property, I need money for it! Please lend me $XXX,XXX. I will be glad to pay you a certain interest after all this gets worked out."

Today, in order to qualify for some no-down (and good thing because with creativity, there are MANY ways to structure a no-down deal, not just from a SML such as a conservative national bank) programs, you have to speak to many people, sign many papers, go through certain qualifications (some program require less, some require more), etcetc.

 

[sifer]

Another example of how the gov't stepped in and made it much harder to invest.

Pay attention Californians.

I read of Proposition 13, which was enacted in California in 1978. In short, people who own their homes for a long time have lower market value than those who have recently purchased it. The gov't wants to control the property's value at certain price for God knows what. Wikipedia will explain Proposition 13. Appear now!

Wikipedia says...
California Proposition 13

Proposition 13 was a ballot initiative enacted by the voters of the state of California on June 6, 1978.

Its passage resulted in a cap on property tax rates in the state, reducing them by an average of 57%. Proposition 13 received an enormous amount of publicity, not only in California, but throughout the United States. Its passage presaged a "taxpayer revolt" throughout the country that contributed greatly to the election of Ronald Reagan to the presidency in 1980.

[...]

Under Proposition 13, the real estate tax on a parcel of property is limited to 1% of its purchase price, forever, until the property is resold. The proposition was passed, in part, due to homeowner anger at ever-increasing tax rates. Among those affected by the increasing tax rates were senior citizens on fixed incomes, who could no longer afford to pay the property taxes on their homes because of soaring population and land value speculation in California.

[...]

Faced with shrinking revenue, both from Proposition 13 and from the state's loss of most property tax revenue (which formerly went to localities -- cities and counties), California localities have recently sought their voters' approval for "special assessments" that would levy new taxes earmarked for services that used to be paid for from property taxes -- such as road construction, school, street lighting, police and firefighting units, and sewers.

[...]

In the 2003 California recall election in which Arnold Schwarzenegger was elected governor, his advisor Warren Buffett suggested that Proposition 13 be repealed or changed as a method of balancing the state's budget. Schwarzenegger, who knew the popularity of Proposition 13 and understood that to advocate changing Proposition 13 was to touch a political third rail that may end his gubernatorial career, said, "I told Warren that if he mentions Proposition 13 again he has to do 500 sit-ups."

Highlights by Cal-Tax Research in 1993

• Alternatives to Proposition 13 have a variety of unwelcome effects, including substantial increases for low-income and elderly homeowners.
• 92% of elderly property owners would be negatively impacted by suggested revenue-neutral changes in Proposition 13.
• Proposed revenue-neutral changes in how property is assessed would result in tax increases of over 160 percent to 43 percent of Los Angeles County homeowners.

For example, let's pretend Pook bought a new home in say 1980's for say $20,000 and the property will inevitably have appreciated if he lived there for many years. Let's say in 2005 he decided to sell his property because he is getting old and wants to move in with his kids, he could potentially sell his home today for about $300,000. But no, thanks to Proposition 13, poor Pook's home is now worth about $50,000. If Pook manages to sell his home for even $200,000, the new owner will have a new value based on $200,000 and the new owner will pay property taxes at the rate of five times that Pook paid. In other words, Pook will have to take advantage of some poor novice investor in order to make that sale.

 

[sifer]

I feel that this should give many novice investors an idea of the situation real estate is in now. Especially if you were to invest in it.


"Damnit, Sife, how do I profit in real estate now? I hear my neighbors and friends making a profit and they are free but I'm not because you're holding me up!"

There are many places you could learn in from, which is what I'm going to go into details on.

Remember, ALWAYS be careful, some people walk the walk and some people talk the talk. Look for those that talk the walk. The ones that walk the walk won't tell you anything, and the ones that talk the talk do not truly know things inside out. Also look for people who will tell you you can do it. The ones that say you can't do it, listen to them, then go out and prove them wrong.


"Just hurry up."

Ok, so you want to get rich, yes?

You want to buy properties with no money down, yes?

Of course, while doing all of this, you want absolutely no risk and making money while you sleep, yes?

Ok. I'm sure you've heard of all of this on TV and many other places of ads, etcetc.

I'm going to tell you one thing. YES, it is possible to do all of the three, but pick only two.

You can get rich while buying real estate on no down payment, but the risk is magnified.

--- This is what most investors dream for, this is the quickest way but the risk is so high I wouldn't advise it. These are the kind of deals you see people like Donald Trump go for. So no wonder you see him bankrupt so many times.

You can get rich while lowering the risk but paying a down payment, but the leverage is lower, this means your RoR goes down too, which means, it takes MUCH longer.

--- This is the typical investor, rent, take advantage of tax, etcetc.

OR, *Sife is seen trying to keep a straight face* be like the rest of the people out there, NOT get rich, pay a down payment, with the risk SO high that it's up to your neck because noone is renting your building or you live in it yourself.

--- This is the most dangerous situation you can get yourself into.


"Ok, fine. I'll learn. I'll do whatever it take."

Be my guest.

Whenever you see these kind of course that offers you such wealth, "GET RICH QUICK, NO DOWN, NO RISK AT ALL!", BEWARE!

Another way to tell if the seminar is bad sign if it says it'll teach you how to invest in 3 days or around that time.

• NOT RECOMMENDED!!!
• Robert G. Allen
• Tom Vu

This is one list I compiled long ago because they were most well-known, luckily I'm not rich enough to afford their seminars or program to get hurt,

I found this long ago from a good program review site but forgot where, it says...
Motivational speakers enthusiastically inflated one's self-esteem, from early morning to very late at night and (almost incidentally), Robert Allen was present at the first and last sessions, talking about his wife and kids, his philosophy on finding one's life purpose etc.; like a kindly paterfamilias who genuinely wanted to help each participant to succeed in life in general, and real estate in particular.

The main idea was, if you can get real (i.e. confront some of the painful/traumatic beliefs about yourself that are keeping you from being successful), you can get your estate. What perfect market timing. Here was a newly created niche of former mid career aerospace workers, with wounded self-esteem, LOTS of time on our hands, very little investment knowledge, but with large lump sums of buy-out cash on hand! The worst memory I have, after a few days of role-plays and confessions to total strangers some of my most painful childhood memories and disappointments, was the final evening. After days of speeches, applause, dancing, laughter, exhilaration and hugs, several hundred people of every imaginable description were now seated on the floor in a HUGE circle.

The room was now dark, except for several dozen flickering votive candles that seemingly appeared out of nowhere, as the soothing sound of birds chirping and water trickling softly came through the speakers. The NLP expert used a low, hypnotic tone of voice to take us back to a time when we first felt loved, and asked us to write about the experience. Even now, I remember the astonishing, overwhelming feeling of love that enveloped that room; so much so that many others and I present, began to weep!

Then, suddenly, the room lights came on, the candles were extinguished and we were handed a questionnaire to complete and guided out of the room, past tables displaying tapes and books for sale, strategically placed near the exit. I felt so utterly duped and devastated at that moment. I filled both sides of the questionnaire with my feelings of psychological rape, which it took me years to heal from!

I found this long ago from a good program review site but forgot where, it says...
The following are some comments of others regarding Mr. Vu's programs:

1) "Tom Vu was a scamster whose late night antics on cable TV provided much amusement for those of us with three-digit IQs. He pitched no money down real estate flam doodles in infomercials that were equal parts Charlie's Angels, Horatio Alger, and P.T. Barnum.

Inevitably, they showed him with a platoon of scantily clad babes on a powerboat, or in a limo, or however else. As his used-building-salesman shtick only harvested the hopelessly stupid (who deserved it), one might claim he was performing a public service. Sadly, he's no longer on cable, from what I gather of Tom Vu fans that now have to look elsewhere for their daily giggle fix. One suspects the local constabulary hauled him to court, where twelve raucously eager peers convicted him of being only marginally smarter than they."

2) "Claimed to be a Vietnamese boat person. Surrounded himself with bikini-clad babes in TV infomercials. I am not sure how babes relate to real estate investment. Was he implying you can afford prostitutes after you get rich using his course? Or were the babes gold diggers, which you will attract because of your net worth? His approach to advertising is so sleazy I wonder why anyone asks me about this guy."

3) "I wish that the Internet had been around ten years earlier. I bought many books and tapes from many speakers. One of them was Tom Vu's course. After I bought the course for about $395.00, I realized that I had been had. The information was just basic knowledge that most reasonable real estate books you get from the library would have. Some of the information was worthless. I kept some old courses, but I threw Tom Vu's course away long ago because it had zero value."

4) "More than a decade ago now, I took an exorbitantly priced one day seminar from Tom Vu (more than $1000 as I recall). This was what he taught:

Vu's main strategy was to control, rather than own, real estate. So you would go out looking for distressed properties, (foreclosures and such) and offer to buy these houses at incredible discounts. He claimed to never offer more than 50% of market value, but said it would depend on whether it was a buyer's or a seller's market how much your discounted offer would be.

The desperate owner would be happy to just get out of the property without ruining his credit, so he takes your offer happily. In your offer, you write that the agreement is between the seller and you or assigns. Then you offer ten bucks as a down payment to make the contract legal, exchange of consideration. Your closing date is a couple of months hence. In addition, you tack on a whole pile of whim-and-fancy clauses, such as this deal is subject to the final inspection and approval of the buyer before closing.

During the time before closing, you find a buyer to assign your interest in the contract to. Selling the place will be easy, since after all, you got it at a huge discount in the first place. You walk away at closing with a hefty profit."

There are many con-men out there. Again, I must emphasize, if it's too too good to be true, it usually is. It takes time and persistence and it takes a lot of practice. As I have said before, I'll say it again, many of you will give up. No matter what you say now, I have heard most of it, in the end, when you actually get into it, you will quit if you don't have time or if you're not persistent. A friend I knew couldn't even make it when he was rejected by two phone calls. One hung up on him, the other said "wait a minute, you what?" when he asked for the seller financing. He told me it's impossible, that he's scared, that he rather work. I'm not going to pressure him, but whenever he has money problem, he has noone else to blame.

 

[sifer]

Remember, you are not a Don Juan until you live it. I am a speed-reader and I can speed-read the entire DJ bible and understand the concept inside out but I am not truly a Don Juan until I have applied it! The same with REI, you can understand a few vocabulary words like cash budget, expense ratio, asset/liability management, management buyout, REMIC (real estate mortgage investment conduits), income trust, gazump, etcetc but it doesn't make you anymore of a real estate investor than your Realtor.

It is hard, unlike Don Juan, where picking up women almost becomes a walk in the park, you'll start having problem such as time management, zoning rules, local laws, state laws, court cases, get sued, filing paperworks by yourself, etcetc.

Your Don Juan skills will be used 110%, you will be pulling absolutely cold approach. You will talk to bankers and businessmen, some of these men who will in one way or another do battle with you. Yes, but don't be discouraged.

Now that you know who to avoid, do more research! When you get there, when you become knowledgeable and good enough to calculate a property's worth within 5 minutes, you'll have the eye of the tiger.

I have two people that I recommend, Carleton Sheets and Robert Kiyosaki.

Leaving out Robert Kiyosaki for another time, for obvious reason.

Carleton Sheets. The reason why I recommend him and sole reason is because he is best for beginners. The only thing I can tell you is this, many of the things he tells you are "twisted".

For example, you have bad credit?

The first few paragraphs in his manual he'll tell you to fix your credit. While that isn't wrong, that isn't strictly what he promised, which I think is being able to buy even with bad credit. The knowledge in the books and manuals are priceless from what I hear.

A friend of mine who has a daughter, she bought a house with no money down, and got cash back at closing with her b/f. She never even laid her hands on Carleton Sheets' book or Robert Kiyosaki's book. There are LOTS of 100% loan programs out there, even in a bad bad markets.

You just have to know where to go and you just have to know how you are going to do it and I think Carleton Sheets is good for that. He has some technical information and how-tos' in his manuals.

Attend clubs. Investor clubs.
Sadly, like seminars, there are good and bad ones. In seminars, the bad ones are filled with "you can do it" and very little informations. The good seminars will provide technical information, and at a nominal fee, walk the entire group through a LIVE action, meaning the seminar instructor should show you how to buy a property in a real working situation, LIVE, where the risk are there.

Clubs, the best clubs will give you great contacts, the people there are awesome. In one day I've met over 20 real estate investors who all share contacts. They will give advice and oftentime they encourage. In real estate investing, what comes around goes around. If you feel bad (uncomfortable is fine, first day or second everyone feels awkward) LEAVE. The club probably isn't good so listen to your instinct.

A good club, especially larger ones (with more than 1,000 people), will usually do it all. That is, have people with a variety of skills, those who can flip to those who are full-time landlord.

Good clubs will help you, the people there can teach you more negotiation tips than any college textbook can, they are far more expressive, far more lively, and speak mostly from experience. They can show you a property that you two can work on. Or form partnerships, or form REITs, or form even corporations.

As for bad clubs, they are easily seen as negative. The people tend to be more negative (there will be negative people in good clubs too, just not as much). The bad clubs will sell you books and tapes, mainly sell. Again, good clubs will too but it won't emphasize, the purpose of these club is to meet up with other investors with same interest as you. A bad club tend to have more cynical people.

Remember, if you meet too many cynical people, LEAVE. LEAVE BEFORE YOU BECOME CYNICAL YOURSELF!

If you stay long enough, you will soon be saying "REI is impossible", long before you know it, behold you'll find yourself writing a resume.
_____________________________________

Thank you!

When I have time to write more I will.

 

[Giovanni Casanova]

I don't know what's so gotdammed difficult to understand about the phrase "No Political Discussions".

 

[sifer]

Originally posted by Giovanni Casanova
I don't know what's so gotdammed difficult to understand about the phrase "No Political Discussions".

There's no political discussion per se.

It's discussing objectively on the situation and how real estate got to where it is today.

If you took out all politics, real estate investors would not understand why the techniques are being employed the way they are today.

 

[Giovanni Casanova]

Originally posted by sifer
There's no political discussion per se.

It's discussing objectively on the situation and how real estate got to where it is today.

If you took out all politics, real estate investors would not understand why the techniques are being employed the way they are today.

If you can't discuss real estate investing without discussing politics, then don't discuss real estate investing. Period.

 

[sifer]

Originally posted by Giovanni Casanova
If you can't discuss real estate investing without discussing politics, then don't discuss real estate investing. Period.

I see. I will write no more then.

Congratulation on your marriage with Penkitten, I just noticed.

I remember when I registered in Dec. 2001 under another name, there was no rule on not dicussing politics itself.

Why the rule change all of the sudden? It's been a while since I last visited the forum.

Where does it say no political discussion?

Anyway, happy marriage Gio.

 

[Giovanni Casanova]

Originally posted by sifer
I remember when I registered in Dec. 2001 under another name, there was no rule on not dicussing politics itself.

Why the rule change all of the sudden? It's been a while since I last visited the forum.

Political discussions were banned quite some time ago because nobody could discuss it reasonably.

Political threads get locked or deleted now.

If you want to talk politics, there are political message boards you can join. If you want to talk real estate, that's fine. If you can't talk real estate without talking politics, then you can't talk real estate here.

 

[RepphIz]

all dat post u made and no1 response

a moderator diss u

hahahahaha yea :crackup: :crackup: dont go to school, dont get a job

 

[Bonhomme]

The BIG pitfalls

... that resulted in me phasing out RE investing and geting into home inspections:

1) The cost of money. If you're not loaded, to flip properties you'll have to borrow a hell of a lot of money. If you have a day job and great credit, you can borrow the money relatively cheap, but will be very hard-pressed to find the time to manage an extensive rehab project, which almost all flips involve.

If you have non-verifiable income, expect to be slaughtered by interest. The lenders will almost certainly make much more money than you do. "Hard money lenders" ain't called that for nothing!

2. Carrying costs. This is a killer. People almost always way underestimate the carrying cost of a flip (utilities, insurance, property taxes, bullsh1t city fees, etc.) Allow at least $5,000 for this.

In fact, for a house with an after-repair value of $80K, I found I had to allow about $10K for the sum of the the carrying costs and cost of money. That's a killer!

3. Unreliable workers. When doing an extensive rehab project, it is almost necessary to get the least expensive handypeople that can do adequate work to work for you. Otherwise, there's just not enough margin, since you're competing with non-business people who want to pick up a fixer to customize it for themselves, have no idea of what they're getting into, and often end up feeling like they've been "fixed" before they get too far into it... often way over their heads.

Often these "handypeople" will not show up, will go off your job for other jobs, have drug problems, etc., ad nauseum. Expect to fire a real lot of contractors if you do rehabs.

I haven't even got into rentals yet, but I will say never buy a house from someone in foreclosure with any written contract to sell it back to them on an installment sale or lease-option. You may have to foreclose, rather than evict them, adding a year of rent-free living for the deadbeats to the process, and possibly losing your profits on account of "usurious interest." Scary.

Edit: the best technique for someone to make money with little of their own cash in real estate is to do lease-options, in which you in turn rent to another person, perhaps on a lease-option, with a higher sale price and option fee option fee, and at least the same rent. But you can end up doing a lot of managment work for nothing for a while if you're not in an appreciating market. I personally think a vast majority of home prices are way inflated right now.

 

[RepphIz]

datz exactly y a job is so important, theres more

business and investing in re is just no use

 

[Bonhomme]

One can make it

Don't get me wrong. One can make it, as long as they have either money in the bank, good credit, or a good income to start. Very, very, very difficult without at least one, preferably 2 of those.

There are also spinoff benefits. I would not have the skills to be a home inspector were it not for investing in real estate doing renovations.

I also have a builder's license, and could easily get work as an electrician's or plumber's apprentice, and probably would very soon be a journeyman on account of the knowledge I've gained, not to mention business management (not that I'd want to go there: I love my sleeping in and free time).

 

[diplomatic_lies]

Originally posted by RepphIz
all dat post u made and no1 response

a moderator diss u

hahahahaha yea :crackup: :crackup: dont go to school, dont get a job

i agre, i wet 2 havard univasty n mejerred in inglish n biznezz now i am cominicashion direckter of micosoft n im supa rich!

 

[Bonhomme]

But, playing double Devil's advocate...

How many hours a week do you work, d_l?

(chukling at the pidgin English... paging Jar Jar Binks!)

 

[Page]

Re: The BIG pitfalls

Originally posted by Bonhomme

1) The cost of money. If you're not loaded, to flip properties you'll have to borrow a hell of a lot of money. If you have a day job and great credit, you can borrow the money relatively cheap, but will be very hard-pressed to find the time to manage an extensive rehab project, which almost all flips involve.

If you have non-verifiable income, expect to be slaughtered by interest. The lenders will almost certainly make much more money than you do. "Hard money lenders" ain't called that for nothing!

2. Carrying costs. This is a killer. People almost always way underestimate the carrying cost of a flip (utilities, insurance, property taxes, bullsh1t city fees, etc.) Allow at least $5,000 for this.

True. You have to crunch the numbers before hand and see if you are going to make a profit. It involves risk, but the alternative of playing it safe being a lifelong employee is a whole lot worse to me.

Be sure to have enough capital on hand to cover the carrying costs of property, even if you have to funnel it in from your other assets. On multiplexes, many units are likely to be occupied when you buy, so you will make money (or at least break even) from the get go until you have zero vacancy. Houses are different; they have to be occupied or your nice asset turns into a money-eating liability) , that's why I'm going to stick with multiplexes, and then move on to commercial property. Who knows-- maybe someday I'll do development (watch out Donald Trump--- I'm coming for you! )

With multiplexes, the carrying costs will get you only if you have zero occupancy, which would be unlikely. (the one time I could see this happening is with a place that is very distressed, but take out a rehab loan, fix it up, and watch your vacancy rate plummet.) It's not like everyone is going to suddenly vacate when you buy. Plus, there is a government program called Section 8 (essentially a grant) that provides you with low-income people to fill vacancies, but also give you the power to kick the deadbeats out fast. There are waaaay more section 8-eligible would-be tenants than there is availible housing, so there are plenty of these people to go around, so your vacancy should always be near zero if you make use of this program. Section 8 tenants are actually quite good b/c they have taken courses on how to care for apartments and facilities, and if they trash the place you have the right to terminate their occupancy. Plus, if they trash the place, they know they will not be eligible for rent subsidies, and they don't want that to happen to them, so they will respect your property more often than not. It's a win-win for you and them.

Also, RE: carrying costs, remember, you can (and should) make the most money on the property when you buy. This should help you go through the lean times until you get those vacancies filled.

 

[diplomatic_lies]

Originally posted by Bonhomme
How many hours a week do you work, d_l?

I'm in college right now, so technically I'm not working.

Of course Australia is a lot different. All colleges cost less than $10K a year, and the government gives all students interest-free loans. There's no reason NOT to go to college in Australia

On the down side, Australia has a huge amount of fees attached to buying/selling property, so flipping is much harder here.

However now everyone is going to college, so having a degree doesn't make you stand out anymore.

 

[RepphIz]

k ill stop typing like that
happy now dip?

good
YOU NEED SCHOOL
period

good job giovanni cas for finding a way to shut sifer up, ban sifer if possible! he is dangerous!

noone no matter what should even be THINKING of this rei

:crackup: :crackup: :crackup: bet you spend hours to write that and your first reply is someone telling you to shut up

guess noone finds it useful, go away sifer

 

[Bonhomme]

k, d_l, got 't, u wuz jokin bout that, 2