Good Idea....please read - Posted by Rental Man

Posted by Del-Ohio on August 29, 2003 at 12:52:09:

… should have run the numbers before I posted them. I was using it to make a point about starting to invest early. I was suspicious of the numbers when I posted it, the reason I gave the credit to the source, Dianne Kennedy CPA - Rich Dad Advisor.

I ran the numbers myself then the next day and they are not accurate. I then ran a scenario similar to what we are doing, buying 24 properties per year with 0% down. When I did this for ten years according to the calculator we were going to be in worse shape than we are now.

I emailed them to point out the problem and their response was something to the effect that it is not designed to do no money down scenarios. I pointed out this above scenario and di not get a response.

Makes you highly suspect of using Rich Dads accountant. Maybe he just thinks he is rich.

The calculator is highly promoted by her in a variety of different places. I would think an accountant on the nationial circuit would be more accurate in projecting growth and equity increases.

To test the calculator yourself you can find it here.

http://legaltaxloopholes.com/PublicServices.asp

To complain write

feedback@legaltaxloopholes.com

I hope i didnt mislead anyone too much.

del-ohio

Good Idea…please read - Posted by Rental Man

Posted by Rental Man on August 19, 2003 at 23:39:46:

Hello All,

I am a fairly new investor and would like any advice that you guys/gals could provide to me.

I currently have about $30k-$40k of equity in my home. I would like to get into rental properties. I do not have too much in terms of start up capital. I was wondering how I could somehow purchase 2 properties possibly by the end of the year if not, then hopefully by early spring of 2004.

The idea that ran across my brain was to take out a home equity line of credit (I am not sure if that is the correct term for what I am referring to), then take that money and use it as the down payment on the 2 properties.

Is this something that will work? Are there any negatives to this idea or better ways to go about this?

Other details of my situation:

I do not have 2 specific properties that I am looking. I am just looking to acquire 2 that would make good rentals and not cost more than 140k. Condos are a strong possibility. Is there anything good or bad about condos?

In May 2003 I refinanced my current primary residence to lower my rate. Will this cause a problem?

I am currently in the DC metro market, which seems to be going up everyday.

I thank all of you graciously in advance.

Thanks
Jermaine

Re: Good Idea…please read - Posted by Katlara

Posted by Katlara on August 21, 2003 at 16:37:45:

We did what you described. We took out a HELOC so we could put 10% on a $112,000 rental house. We turned around and paid off the HELOC over the next year.

The rental house is now worth about $135,000 and we owe about $99,000 on the loan. We have a cash flow of a couple hundred dollars a month.

This was our first deal … we bought this when we were 27.

Re: Good Idea…please read - Posted by Jorge

Posted by Jorge on August 21, 2003 at 01:02:27:

Something I have learned in my short time doing this with 1 duplex is to make sure you have reserves before you buy the property. You will not stress out as much. As Dell Ohio said though, DO Something. talk to Mortgage people, talk to sellers, talk to real estate agents, just do alot of Something… but before you get your 2 properties, make sure you have the cash reserves to be able to buy a water heater, or furnace or air conditioner… or whatever might go out. Or be able to have money to market the heck out of a property to rent in case someone moves out unexpectedly… UNless of course you like un needed stress… If I had an extra $5k I would not have the stress I have right now tryiing to remodel on of the units in the duplex I bought 6 months ago. Now I am moving Back to denver and have to have both my primary residence rented out and the other one fixed in less than 30 days oh yea and my tenants I have in the other are moving out at the end of this month! So I have to rent that out as well… and I barely have enough for the remodeling…so I have to rely on the signs I have out to rent out my place… and have to rely on people that I know to help me with it that always seem to have an excuse to why they can’t make it…and that sucks. So If you had a choice between putting 10% down or keeping that 10% and finding a no money down deal, I would rather do that!

Good luck!

jorge

Re: Good Idea…improved upon - Posted by del-ohio

Posted by del-ohio on August 20, 2003 at 18:57:44:

Brent has good advice.

My viewpoint, to expand upon what he is saying.

Learn how to buy with little or none of your own money, keep enough so that WHEN something goes wrong YOU don?t become the “motivated seller”.

Learn how to buy properties at a discount, always negotiate and always buy properties that have positive cash flow, after, figuring all expenses including vacancies, repairs and maintenance.

Something for you to think about. …

If you have the ability to finance two properties now with 20% down. If instead, you figured out how to buy with 10% down, you could buy four properties with the same amount of money. If you learn to finance with, five percent down, you can buy eight properties.

If you learn how to buy and finance with the owner carrying the down payment, your growth is pretty much limited to what you can handle.

Another great strategy, when the owner is not willing to carry the down payment on a good deal. We finance through our bank at 80% of appraised value or selling price whichever is less. Then we use equity in another property for the down payment.

Again with this scenario it does not take any of your cash. It takes knowledge as Brent was suggesting.

To give you an example of how this works. This is what we did. In Jan we started to do creative RE almost full time.

We purchased our first property a five-unit apartment/office building for 55,000, did about 15,000 in renovations and increased all the rents. The building then appraised for 152,000. We used the equity in this building as a down payment in the next property.

We kept growing from there. Buying other good deals, getting the owners to carry down payments, if that did not work we used equity from previous other properties for the down payments. This is what we have done now on all twelve properties we have purchased so far. We have none of our cash invested in the properties.

We have cash if we need it but its a lot more fun not using it to buy properties. I prefer to use it for education, vacation or the occasional toy.

Depending on the area you are in you may not be able to find a deal with these kinds of numbers, however this is the concept that can make you wealthy with very little cash.

Personally, I have had more fun the last seven month than I have had in a LONG time and I have made more money in this same period that in did in the previous three years combined, and I wasn?t doing to shabby before.

As important as education is in the real estate game. The most important thing is to start, DO SOMETHING, don?t wait forever to get it right, the most important thing is to START and LEARN. And get it right as you go.

If you keep your full time job and do nothing more than put 20% down, and buy one $100,000 property per year, in a good neighborhood with an appreciation of 5% annually. According to Diane Kennedy CPA (Ms. Tax Loopholes) this is what your assetts will be for each of the next ten years.

1 $26,637.13
2 $68,156.77
3 $174,393.61
4 $446,223.19
5 $1,141,757.05
6 $2,921,428.58
7 $7,475,097.18
8 $19,126,628.09
9 $48,939,551.27
10 $125,222,264.35

Hey, not too shabby, in 20 years you might be able to live off your real estate income.

Something to think about.

Dell-Ohio

Re: Good Idea…please read - Posted by Brent_IL

Posted by Brent_IL on August 20, 2003 at 13:17:57:

What it comes down to is if the RE purchases are financial disasters, can you comfortably make the new payments on the HELOC, or will you lose your family home to foreclosure?

My thought is that a CRE investor will be better served by learning how to do deals with minimal cash. It would free you to buy more than two rental properties, and make the use of the HELOC much more effective. Get knowledge before you get property.

Re: Good Idea…please read - Posted by Rental Man

Posted by Rental Man on August 21, 2003 at 08:31:32:

I thank you all for your insight. Like I said, I am new to this, but am looking to establish a long term future for myself. I just am trying to figure out the best way to get started and I believe you guys have pointed me in the right direction. If you can think of anything more information that would be of assistance to me, please feel free to drop a line.

Thanks

I must be missing something… - Posted by randyOH

Posted by randyOH on August 21, 2003 at 10:38:28:

Del,
I did not do the math, but I don’t see how you would end up with anything close to $125,000,000 after 10 years. Ten houses at 100k is only $1 mil. Compounding at 5% will not get you from $1 mil to $125 mil in ten years. What am I missing? You did say one house per year, right?

If you bought all ten houses at the beginning, and they appreciated at 5% for ten years, you would have $1,628,895 in total value. If you bought them as you suggest, you would have less than that. And your debt would be $800,000.

Please clarify.
Thanks,
Randy

Good improvement - Posted by Brent_IL

Posted by Brent_IL on August 21, 2003 at 02:53:06:

Dell,

This is a very inspiring post.

It took me a few seconds to see where Ms. Kennedy was coming from, but once I did I saw how powerful that example is. Thanks for sharing that progression.

Brent