|
Prev Blog << |
Virtual lunch |
Next Blog >> |
 |
Category: Need Advice Current Grade: A Total Views: 2224 Member Comments: 12 |
Posted on: 04/21/2008 Posted by: JohnCorey Blog Points: 1666 View all blogs >> |
I started investing back when cell phones did not exist, we had large units which bolted into your car. There were no voice mail systems, the Internet existed by the World Wide Web had not been invented (no browsers, now websites, no ability to use auto-responders). We still has houses and we still had people investing in RE.
One piece of advice that worked then and which still works today is to take a seasoned investor to lunch if you want some quality coaching time. For the price of lunch you get 60 to 90 minutes of dedicated one-on-one time with someone who knows more than you do on a specific topic. You agree to pay for lunch, they choose the location and then you control the focus of the conversation.
How much could you learn if you had s dedicated slot with someone you have identified as a seasoned investor?
Well, time has move on but RE investors are still a sucker for a free lunch. Maybe we like to save a few dollars when someone else is paying or maybe we just like sharing things we have learned.
With the Internet we now have blogs and other ways to consult with people and to learn from each other.
I am offering the opportunity of a virtual lunch. Rather than you needing to pay for lunch at a place of my choosing all you need to do is post some questions you would like to discuss. Depending on the questions we can focus one blog on a topic or we can combine the questions when they are related.
Pretend that you have 60 to 90 minutes with an investor who has been investing since 1983. What would you want to know? What would be on your list of questions? How would you organize the time so you received good value for the price of a virtual lunch?
As there will be no bill at the end how about you just leave a tip in the form of a rating if you find the information useful? Deal?
Lets get started. Post your questions as replies right here. If they need their own blog I will start a fresh discussion. Or I will post my views down below.
John Corey
One piece of advice that worked then and which still works today is to take a seasoned investor to lunch if you want some quality coaching time. For the price of lunch you get 60 to 90 minutes of dedicated one-on-one time with someone who knows more than you do on a specific topic. You agree to pay for lunch, they choose the location and then you control the focus of the conversation.
How much could you learn if you had s dedicated slot with someone you have identified as a seasoned investor?
Well, time has move on but RE investors are still a sucker for a free lunch. Maybe we like to save a few dollars when someone else is paying or maybe we just like sharing things we have learned.
With the Internet we now have blogs and other ways to consult with people and to learn from each other.
I am offering the opportunity of a virtual lunch. Rather than you needing to pay for lunch at a place of my choosing all you need to do is post some questions you would like to discuss. Depending on the questions we can focus one blog on a topic or we can combine the questions when they are related.
Pretend that you have 60 to 90 minutes with an investor who has been investing since 1983. What would you want to know? What would be on your list of questions? How would you organize the time so you received good value for the price of a virtual lunch?
As there will be no bill at the end how about you just leave a tip in the form of a rating if you find the information useful? Deal?
Lets get started. Post your questions as replies right here. If they need their own blog I will start a fresh discussion. Or I will post my views down below.
John Corey
Ideas are like snack food to me. There's an "ah hah!" rush that is similar to sugar. Note I didn't say "junk" food. Ha! The idea of developing two portfolios, one for sale and the other for cashflow ... definitely got my attention. You called it a "hybrid strategy" back in April. The concept is much like the 3-2 rentals in the Cashflow game. You buy them knowing that investor card will show up and you'll make enough on the sale to fund that big deal.
Question: What would that business structure look like? Separate LLCs where one funds the other. Have one partner run the rentalsLLC (cashflow) and other partner manage the fundingLLC (growth). You'll have to translate the US/UK terminology of course.
Sign me up for a dinner! Come have barbeque with me and family out in the country in Texas. We'll drink bourbon around the bonfire. You can regail us with interesting stories. - Dan
To answer you question you have to think about the financing. Many experienced investors will assume that the maximum they can offer is 70% of the ARV minus all costs. I will skip over what goes into the cost bucket; just assume everything that could be a cost goes there.
What makes 70% the magic number? Good question given that with today's market 70% is no longer the right magic number. The logic is you want to sell the place to a wholesaler or you want to get financing so you can get the work done. If you want to maximize the ability to sell the property you want to price it so ever investor who you wholesale to can get financing. If hard money lenders who are true hard money lenders (no credit checks) will lend to a maximum of 70% of ARV then you want to make sure your deal is priced below. If the hard money lenders you can find will only go to 65% or 60% of ARV then you need to put the percentage figure into the formula.
To restate - If the no questions asked financing has a maximum of X% then that is the X you need to use in the formula to calculate the maximum price you can afford to pay and still make a profit.
John Corey
www.ChelseaPrivateEquity.com/blog
I have a question. You said wholesalers formula: 70%. What does that mean exactly?
I never consider ROI in the way most people think of it. I look for deals where I can lock in a profit when I buy. ROI when you include the future value of the property is not much more than an opinion or a guess about the future. If you can make a profit when you buy then you can let the future happen without needing a specific outcome.
If you focus on the cash flow then you can afford to be a buy and hold investor. The property pays for itself so there is no financial pressure to exit at the wrong time.
There is a formula for wholesaling. The 70% rule.
If you want t rule for buy and hold use the 2% rule. The monthly rent is 2% of the purchase price.
As to locations to focus on. If you are buying for cash flow then you will be forced into certain areas. There is no choice really. At least not if you want to avoid pouring lots of equity in to make the property cash flow.
Lets be real about the markets. Some have no property that will cash flow if you are looking at 1-4 units. Either you have to invest in another area or you need to shift gears a bit. If your desired market will not cash flow then use a hybrid strategy. By and sell for a profit X properties for everyone that you decide to keep. Re-invest the profits into the ones you hold. Or have two portfolios (one for equity, one for income) and then view the portfolios together. Total return of the two halves.
On the 'web chain' comment. I am not sure where you are talking about (site). I know on this site the editing tools are not always available. A browser or site problem.
John Corey
A bank cannot give up on selling real estate. It is required by law to only hold RE that is needed for current operations. It cannot sit on the excess. They might have a deal in the works which will take the property off the bank's books. A bulk sale or something else.
You need to speak with the builders to see what they want to do. A short sale might not be an option in the traditional sense. It could be very damaging to the business. It might actually shut the business down. There could be a deal to be done but it needs to work for the parties involved.
John
Hey I had a question about the buy and hold strategy. I was wondering what rules you typically try to follow.
If you're ever in Oakland, look me up for that free lunch.
PS - I found your link from another blog you had. Wasn't sure if you're aware that little web chain icon will embed your links, so you don't need to say copy paste this link...
John,
Thank you providing information about these deals.
1. On the vacant foreclosed properties. Why has them banks given up on them? They did not try to sell them the way most REO's go, they are just sitting empty and depreciating. What would you suggest to do?
2. Yes, I have spoke with the builders, in this example. They just want out of the properties. They are paying monthly and do not how long they can last. What would you suggest to advise them? Would you get a option to purchase contract on them and try to create a short sale?
Sincerely,
Dewain
Short sales can only work when the lender is willing to let the borrower pay off the loan for less than the balance (paying short, shorting the loan). There will be a sale at the same time.
In the case of bank owned property there is no loan in most all cases. The lender who foreclosed retired the loan that triggered the foreclosure action when they won the auction. The lender went from being the lender on a property owned by the borrower to being the owner of the property with the loan being retired. In some ways they traded their loan plus lien for the title of the property when they won the bid.
That means that REO properties are not going to work as short sales given there is no loan to short. The lender can accept any price they feel is right to dispose of the property.
I am glossing over any other liens that might still exist. Junior liens will be gone (other than IRS liens) but senior liens will still exist. So, the above info is correct but you do need to know what the title looks like just in case. Most of the time an REO property will be sold by a bank with no liens. I said most, not all of the time.
The builders might want to deal. If the property has a construction loan on it then the lender is likely local and they might be easier to negotiate with because you can actually talk to the decision makers rather than just a clerk. The builder might not be happy with a short sale if it damages their future ability to get construction financing. My point is anything is possible but the players in this situation are not like homeowners living in the property. Less emotional but maybe not looking for the traditional solutions.
Have you spoken to the builders? What do they want to do?
John Corey
John,
Thank you for your time to answer our questions.
A lot of the deals that I see currently are probably what you would call an short sale opportunity. Would have time to possibly walk me through a short sale?
I know of properties that have been sitting vacant for 1 to 2 years. I know that some are bank owned but, have never been sold. Probably because the loan amount is greater than the current value and some of the smaller banks just do not know what to do.
I also know of properties that builders have built that at the time they started building them the market was up. Example: I know right now, without even searching a couple of builders (not me).
Cost to build: 189,000
Appraised value: 218,000
Due to the market value drop in the past 12 months, the property is sitting empty. The builder is carrying the construction loan waiting for a market turn around but, I think a short sale is in order then, we could sell the property fast for 180,000 - 185,000.
Please give me your opinions.
Best regards,
Dewain
Three questions, three answers.
1. I read a book and then took a 2 day course. The key to my success was I found a deal 24 hours after finishing the 2 day course. Action rather than spending too much time getting ready.
2. Apply what I know more. I get lazy some of the time. Granted that is one thing I like about a buy and hold strategy. You can take time off and see the world rather than feel like you are trading a daily grind for another daily grind.
3. Expanding buyers lists comes from two things. (a) Putting in the time to find buyers. Lots of people have explained how. There are even books. The key is there is no magic that only a few know. (b) Having great deals will attract buyers. Focus on wholesale buyers who are going to buy more than once and can close with cash if you have deals that can not be easily assigned. Otherwise just have screaming hot deals and the buyers will bug you.
Tangent: If you have screaming hot deals you might focus on find a way to take them down yourself as you will make more in some cases. Volume of deals vs. profits per deal.
John Corey