Re: Ed Garcia & the PACTrust - Posted by Bill Gatten
Posted by Bill Gatten on January 21, 2001 at 21:25:59:
Very nice words, Ed. Thank you (and my respect is mutual). But my most appropriate comment at this point would probably be the same one I spoke to myself after meeting with Bill Bronchik a couple months ago, and finally getting his understanding tentative seal of approval: “Ahhhhhhhhh…at last?..!”
I shouldn’t add anymore here, I know: but Ed, you?ve compelled me (in all candor) to report that contrary to part of your assessment of the PT, 80% or more of the transactions we do, do in fact include 10% to 30% equity in them, and at least 5% to 10% percent in up front cash, and quite decent monthly cash flows.
The concept of acquiring property solely for future income potential is one I have never taught or subscribed to at all. If there were to be no cash flow, no equity and no up front money, I certainly wouldn?t touch it…with even YOUR quite impressive ten-foot pole.
However, if there is no equity (or even if there?s negative equity), I?m, not going to let a free property go to seed if I can get a cash flow, up-front cash and a running chance at some future profits. Existing equity doesn’t mean anything to investors in any business other than the real estate business (?because we’re spoiled). Think about it: how much equity does one have when purchasing stock, mutual funds, bonds, etc.? (Hint…rhymes with ?bun? or ?beereaux?). Should we not invest in those things, Ed?
Which is more consistently likely to increase the most in value over time, a stock certificate or a house? How much equity does a 100% borrower have in the house he just bought? Is a 100% loan (maximum leverage) not a good thing?
Why do investors buy stocks and bonds? Answer: Anticipated (but not guaranteed) yield; no loan application, no management, no repairs, no maintenance, no upkeep, no property taxes, no insurance?and no payments (?sound familiar?).
The one concept that we do agree on is that, for the experienced ?swimmers? with money and credit, acquiring property the easy way is best. Though for the cash and credit, and or/experience challenged ?non-swimmers,? who are willing to work and learn,the PT offers a chance, an opening and a quite effective life jacket, should things go wrong later. However, even for those with ?plenty? of cash and credit, isn?t NOT using it better than using it, if at all possible (or if its availability isn?t required in order to make the deal)?
Ed, if you and I buy identical properties on the same cul-de-sac and you pay $30,000 down and have payments of $1,000 per month; and I have to pay $10,000 more for my property than you did due a lack of bargaining power and credit; but mine requires no down, and payments of $1,550 per month?Whose R.O.I. is greater when we sell our identical properties for the same price five years later? Especially assuming that neither of us had negative cash flow, vacancies, management or maintenance costs over that period of time? In addition, what if cash and credit were NOT a problem for me?how many more properties could I buy than you could over the same period? Wouldn?t it be good for even the most experienced, wealthy and credit worthy investor to have a tool like this in his box (as it were)?
Ed, I think maybe one more workshop at the most, and your gonna have this PACTrust thing whipped.