$30k and Clueless - Posted by Nelson

Posted by Chris in FL on September 22, 2011 at 21:39:48:


I am in Central Florida… Want to point out a few things…

First, I am not sold on the idea that we will experience “additional 20% + projected drop in home values”… But, my crystal ball is murky on what will happen, so we will leave that topic for another day.

Second, I don’t think it matters what our FL RE market in general does in the future (which nobody can tell you with certainty). Here is why… As RE investors, we don’t buy the way everyone else buys. If we can find ways to pay cash, we buy 25-50% below today’s market value (if you can’t do that, don’t buy paying cash)! Example of my average purchase this year: paid $20K, have $25K invested with closing costs and repairs. I borrow $20K from a private lender, so down to $5K out of pocket. I rent house for $650/month, and collect first month’s rent plus security deposit, dropping my out of pocket to $3,700. Monthly cash flow: $650 rent, less approx. $300 mortgage payment (my terms are 7.5 year fully amortizing mortgage, 8.75% interest), less approx. $100 taxes and insurance, leaving $250 positive cashflow. Of that, I conservatively factor $150 as my vacancy and repairs, leaving $100/month positive cash flow (more if it is in good repair, and I manage it well). In 37 months, maybe less, I have all of my money back, and still collecting $100/month positive cash flow. Stay with me here. Next, in 90 months (7.5 years) my mortgage is paid off (and my cash flow jumps by $300/month). Now I own the home free and clear. Further, I have passive income, and other tax benefits - depreciation, 1031 exchange privileges, ability to borrow money against the property without paying taxes on it! Wait, could it get any better… I think it can… The house I invested in, when I finished repairs, was comparable to houses selling for $40-50K around it (retail). If, during this time, the RE market drops 20%, do you think I really care? In fact, I see that as an opportunity, and a challenge to buy more houses faster, because the prices are better!

This is the cookie cutter method I have used to buy 13 houses in the last 18 months, and I am waiting to close on 1 more next week, and another next month. Mostly REOs and short sales.

One caveat: when looking at ROI, etc., recognize I am running a business (sort of). What I do requires more knowledge, work, and involvement than just buying a stock and waiting, hoping it goes up… It also involves much less risk of loss (I think you can see that). However, compared to a full time job, I work less and make more… Plus, the retirement plan is a lot more healthy than S.S. In fact, for comparison sake, I own about 30 houses now, at age 42… I have about a 6 figure income, which, if I quit buying more, I can manage, and do some repairs myself, in 20 hours a week or less… Plus, if I settle for a little less income, I can hire out almost everything, and vacation in the Bahamas. By age 50, it will all be paid for, and my income will shoot up more than double.

Best of all, I started poor. I bought my first rental in 1998, while working a full time job, making $8-9/hour… A year later, bought another… The next year a couple more… When my first son was born in 2002, my wife was able to quit working and be a stay at home Mom (we had to scrape by). In 2007/2008, several promotions later, I quit my full time job, because the $40K salary seemed too small for committing 40 hours/week of my time. Fast forward to 2011, I have two sons, 4 and 9, a very nice pool home in a great neighborhood, and my finances are quickly moving towards the point where money should never be a concern in our family decisions, such as where to vacation, eat dinner out, etc. Within reason, we will be able to do what we want in life… Most of our family, and friends from back in 1998, are struggling financially, robbing Peter to pay Paul, and generally working longer and harder trying to get by on less and less as the cost of living rises twice as fast as their incomes.

So, my advice to you, Nelson, and many of the other Nelsons out there, if you are serious about RE investing, is to study, learn, find a cookie cutter of your own - one that works for you regardless of what the general RE market does tomorrow - and then start making cookies…

Best wishes,
Chris in FL (who really couldn’t care less if the general RE market in my area drops another 20% or not)!

P.S. - My original plan was to quit at 30 houses, and work on paying them all off… However, RE is so good right now, and building wealth is so easy, that I had to sit down and have a heart to heart with my wife… Together, we decided that rather than stopping now, we have set a moving target: currently anticipate stopping somewhere in the 40-50 range… But, I reserve the right to lower that number if my phone starts to ring too much, and to increase that number if I get there and find I am still having too much fun doing this (personally, I am hoping it is the later)!!!

P.S.S. - Also, my 9 year old is quite interested in the RE investing already - begs me to take him to all of my REIA meetings with me, and consistently asking me to teach him more about it - and I am hoping that sooner rather than later, I can start transitioning some of the management/repairs, etc. to him. Let him earn his stripes the same as I did, and if he chooses, he can follow in my footsteps. If I had that advantage from the age of 9, I would have been a multi-millionaire by 30!!!

$30k and Clueless - Posted by Nelson

Posted by Nelson on September 06, 2011 at 18:53:32:

So I did a few deals in the mid 2000s flipping properties
then just as it seemed I was getting the hang of this whole
investing thing, the bottom fell out. That coupled with some
losing my job and some personal stuff and I landed in deep
%^&@ for several years.

Fast forward to today: I’m in a secure job making high 5
figures and have managed to save about $30,000 or so. I feel
like these past years have taught me alot and I’m ready to
try real estate again. My problem is: I don’t know what to
get into. I’m in Florida (Tampa/St Pete) and with things
continuously sliding I can’t seem to find anything that
works with a f/t job that I’m not about to give up and
really only a paltry amount to use for starting something


Re: $30k and Clueless - Posted by Andrew

Posted by Andrew on September 07, 2011 at 09:56:58:

Wow, I feel like i wrote this post then forgot I wrote
it. Nelson, we are in the same situation. I had a brief
stint with real estate investing before the bottom fell
out, I’m left with a rental making positive cash flow
each month. I am getting ready to re-enter the market
(rehab, hold/flip) and have about 30k to start. I also
live in st pete.
However I do not work a full time job and have much
more time to commit to the business. My plan is to
purchase a fixer upper cheap, do the rehab myself (I’ve
done a rehab before)then rent it out. Once rented I
will put it on the market for a specific profit. If it
does not sell quickly, no problem I have positive cash
flow and can start looking for the next deal.

Re: $30k and Clueless - Posted by Charles Parrish

Posted by Charles Parrish on September 06, 2011 at 21:39:39:

Wow. I love your honesty. So in 2005 you must have gotten lucky and were able to flip a few houses, but now after 6 years you forgot all those creative methods you once used to make money?

I can understand how you feel if you have been out of a specific market ( I say “specific market”, because for investors, we see every segment of real estate as a market, tax sales, foreclosures, options, control & roll, note flipping, rental portfolio building, auctions.)

I would say stop thinking of real estate generally as The Market, select the market you are going to make an immediate profit in.

Don’t let that $30,000 burn a hole in your pocket. It won’t last long. Challenge yourself to control 5 properties without using any money; make offers with study periods in them, delayed settlement, subject to assignment…learn to control real estate and flip your position before you have to perform. Always use disclosure statements.

Don’t take yourself too seriously, have fun, get a better and a specific education for a specific segment of the market you want to profit in.

Let me know how you are doing.

I have a little hobby that keeps me sane in this crazy business, I like to draw. Take a look, leave a comment. www.charlesparrishart.com

Good luck…Charles

Re: $30k and Clueless - Posted by Nelson

Posted by Nelson on September 07, 2011 at 18:53:23:

Not a bad technique Andrew. I’m not the most adept with
the rehabbing skills and I do have this f/t job as

Question: Why rehab it then rent it before selling? Why
not just rehab and sell?


Re: $30k and Clueless - Posted by Nelson

Posted by Nelson on September 07, 2011 at 18:51:24:

To further clarify: I didn’t use ANY creative
techniques back in the mid 2000s: all I did was make
offers on MLS properties, hold them for 3-6 months and
sell them. Far from creative, LOL.

I think what I was trying to say (and didn’t do a very
good job at it) was that being in a state with an
additional 20% + projected drop in home values, just
what niche(s) would be good for this type market? I
understand you’re recommending owner financing/sub 2
techniques but with a market such as mine, is that
really a method that’s not fraught with peril? I could
see using that in Texas or some other state that may
have hit bottom, but not here.

Anyway, thanks for your perspective. I’ve read your
posts before and you’re a pretty intelligent investor.

Thanks again for your time and insight.



Re: $30k and Clueless - Posted by Chris in FL

Posted by Chris in FL on September 09, 2011 at 10:33:29:

Nelson (& Andrew - I think this is the right Andrew),

Andrew and I are planning on getting together in Lakeland on Monday… He is going to buy me lunch at Olive Garden, and I am going to share with him years of RE knowledge built up the hard way (by doing it!). If you can get away from your job, and if Andrew doesn’t mind, you could both come, I will share some of the things I am doing, and then the three of us can brainstorm some ideas for the two of you to think about.

Best wishes,
Chris in FL

Re: $30k and Clueless - Posted by Andrew

Posted by Andrew on September 08, 2011 at 09:29:11:

My thinking there is that if it takes a while to sell I
have the positive cash flow coming in making it easier
wait for the right price that gives me the profit I am
looking for.