Posted by Marty (MO) on April 06, 2006 at 01:34:25:
we don’t do it on all of the deals, but we’ve done it enough to know that it works!
Good luck and keep me posted on how your deals are going. You might track Daphne down if you’re in the same neighborhood. I’d love to work around her, she’s a neat girl.
Marty
No start up money… No problem! - Posted by Tommy
Posted by Tommy on April 04, 2006 at 02:00:58:
After reading in DOW I was thinking that selling the front end of the note sounds good especially because I only have enough start up cash to do one deal, maybe two. One scenario says to pay the investor $2,500 @ 18% for 17 payments of $175. After the investor is payed off I would get the rest of the payments until the note is paid off. Sounds good, but why pay an investor 18%? I have a 401K that I can borrow from, which would require less interest and that interest would go back toward my 401K. I could pay off the front end of the note with my paycheck as well as the cashflow from any other deal. Am I missing something because I don’t see a downfall. Each time the 401K is paid off I could use an advancement to fund another deal until my cash flow is high enough to support my business. Thoughts?
lots of ways to skin trailers… - Posted by Marty (MO)
Posted by Marty (MO) on April 05, 2006 at 07:20:59:
but I wouldn’t tap my 401 right out of the chute…
many plans only allow you to borrow once a year. after you do 6 or 7 of these lonnie deals, you may want to start doing l/h deals. most banks will only start you out at 50 to 70% of purchase for l/h’s- that cheap 401 money will look awful good to you then.
other points… you’ll learn more creative financing by not taking the easy route- sell before you buy, raising investor money, buying from the seller on a note, etc are usually products of necessity that’ll make you a lean, mean lonnie dealer if they’re in your tool box.
if you do borrow against it, I would spread the payments out as far as possible- this is cheap money, why pay it back quickly?
Marty
Re: No start up money… No problem! - Posted by Ryan (NC)
Posted by Ryan (NC) on April 04, 2006 at 19:13:04:
This is the ONLY point I will differ from the advice that Lonnie gives in DOW… The lower your required payments compared to cash flow and the longer you have to pay it back the better off I feel you are when you are getting started.
When we had about 6 units we had a month that no one paid us for whatever reason and I didn’t think far enough ahead to keep a safety reserve at the time. Needless to say, it hurt like hell to come up with enough cash to cover the cost I’d promised to pay. If you can get the money from your 401K with decent terms (say 36-60 months) and do deals with it while paying yourself I’m saying go for it… SO LONG AS you use that money to buy trailers and not a new big screen or to send yourself on a nice vacation.
Best wishes,
Ryan Needler
Re: No start up money… No problem! - Posted by Bill (in GA)
Posted by Bill (in GA) on April 04, 2006 at 11:01:35:
One reason that I’m not planning on doing this is to have a very established track record and trust relationship established with investors – people with money. If I can prove given time that I can provide good and predictable rates of return, on time with no excuses, this will make borrowing larger amounts of money easier down the line. For me, lonnie deals will just be a vehicle, seed money and experience for a larger enterprise (still in very very preplanning mode).
I have a somewhat different partial policy. I offer about 50% of the income stream for the lifetime of the note. I’m willing to pay a slightly higher interest rate to do this, but OTOH I have income from month 1, as well as little to no money out of any of my pockets.
Re: No start up money… No problem! - Posted by Ken L (MI)
Posted by Ken L (MI) on April 04, 2006 at 09:19:09:
Sounds like a good idea. I’d just be sure that you understand your 401k rules and all the ramifications that go with borrowing money from it. Just don’t put your self in a bind.
Anyway, good luck and I am going to check into mine now to see if I have a similar option.
Re: lots of ways to skin trailers… - Posted by Tommy
Posted by Tommy on April 05, 2006 at 11:57:45:
Good Points. Like I said, 401k is an easy way to secure startup money. With any luck I will learn more creative ways as I go and hopefully once my name is out there the creative ways will present themselves. The reason I would want to pay the money back to my 401k quickly is because it can’t grow if it isn’t in my 401k, and I have a fulltime job to live on so I don’t necesarrily need the cashflow at the time.
Re: No start up money… No problem! - Posted by Bill (in GA)
Posted by Bill (in GA) on April 04, 2006 at 21:58:52:
Ryan,
Wat would you recommend in such a safety reserve, for a beginner? How do you calculate it?
Thanks,
Re: No start up money… No problem! - Posted by Marty (MO)
Posted by Marty (MO) on April 05, 2006 at 07:12:58:
are you keeping the down payments? are you figuring the investors return at 50%?
we’ve sold partials where our investor gets half the payment, but is getting a 20% return…
just curious how you’re doing it-
Marty
Re: No start up money… No problem! - Posted by Tommy
Posted by Tommy on April 04, 2006 at 19:01:28:
That is a good point. Building credit with investors is important. I will keep that in mind, but for now I prefer to bear all the risks until I am more comfortable in the business.
Re: No start up money… No problem! - Posted by Tommy
Posted by Tommy on April 04, 2006 at 13:03:06:
It looks like an easy way to obtain capital. I can borrow up to 50% of my vested amount and I can have a loan for my 401K and another loan for my SERP (Sheltered Early Retirement Plan). 8.75% interest paid on a biweekly plan. Nice and easy!
Re: lots of ways to skin trailers… - Posted by Marty (MO)
Posted by Marty (MO) on April 05, 2006 at 20:43:22:
my 401 is easy money once a year- very little flexibility. I’m not real worried about how fast my 401 grows, because I’m anticipating my roth and my investment properties having the clout. a regular 401- the money goes in tax free, grows, and is taxed when it comes out. you’re taxed on the growth (the whole tree!). a roth is taxed as it’s put in, grows, and remains untaxed- even if you pass it on to your kids. you’re not taxed on the whole tree, just the acorn. if you use a self-directed ira to buy trailers, those incredible 100% gains remain tax free. plus, you can pull the principal out any time you want to do more deals.
if you don’t necessarily need the cashflow (I’ll take it!), borrow against your traditional ira at 4%, move some of it into your roth and pull a deal that way, also.
reference jimmy napier’s “invest in debt” book and dick desich’s materials on roth ira’s to see where i’m coming from.
good luck,
Marty
Re: No start up money… No problem! - Posted by Ryan (NC)
Posted by Ryan (NC) on April 05, 2006 at 06:27:46:
It really depends on your comfort level. Tommy basically explained the system that I use, 2-2.5 months total coverage I feel this will cover most any problem that we’ll encounter… IMHO It’s more important to have access to cash (i.e. emergency credit card ect.) than to have actual cash sitting idle in the bank, just make sure you have a way to pay your debts if you hit a problem and you’ll be ok.
Best wishes,
Ryan Needler
Re: No start up money… No problem! - Posted by Tommy
Posted by Tommy on April 05, 2006 at 24:41:55:
In my situation I would feel comfortable having enough reserve money to pay 2 months (investor/lot rent) in a worse case scenario. That way I would not have to tap into my income to keep things floating.
Example: If I had two Lonnie Deals using $5000 investor money or 401k loan (2x$2500) and I owed $350 (2x$175) per month for loan payment + $400 (2x$200) per month lot rent, then idealy I would want $1500 ($400+$350= $750 x 2) in the bank for reserves. That may seem drastic, but a missed loan payment for 401k has IRS early withdrawl penalties.
Re: No start up money… No problem! - Posted by Bill (in GA)
Posted by Bill (in GA) on April 05, 2006 at 12:49:15:
Marty,
Sounds like your system is my system. I’ll keep the downpayment and sell as much of the rest of my investment at 20 - 30% as I can. I’ll try to give my investors the best deal I can.
I’d be selling 50% (or so, depending on the deal) of the cashflow, not offering a 50% return. Unless it is a small amount, under $500 or so. I doubt most of my investors would take any time to even think about this kind of investment unless it were very worthwhile.
It’s good to see that someone else is successful at this system. I was beginning to think that everyone was only selling the front end of the note.
I can’t wait to get started!
Re: No start up money… No problem! - Posted by Tommy
Posted by Tommy on April 05, 2006 at 11:50:39:
In my previous example, I would probably use the down payments for emergency money if I didn’t have an emergency credit card like Ryan suggested. My examples are hypothetical, I haven’t done any deals yet. Right now I am just researching and hope to get started when I get back home in mid-may. I can structure my 401k loan for any terms that I want so I could roll all of my cash flow to repay the loan and keep the cash flow on the back end of the note (better to get that money back into my 401k so it can grow) or set up the terms to use half my cashflow through the life of the note to repay the loan.