Please Someone Point me on a Clear Path - Posted by Brian

Posted by Rich on March 27, 2000 at 06:53:25:…I.first,financed.of.course…I.paid.and…I.did.some.


Please Someone Point me on a Clear Path - Posted by Brian

Posted by Brian on March 27, 2000 at 05:07:15:

Friends, I must admit I do not like being new and I’ve spent quite a bit of time learning theory with books, courses and miscellaneous information…and I’m intimidated with creative realestate investing because I have not paid my proper dues in practice yet.

I’m terribly frustrated because I have become educated on a perponderance of ideas and methodologies, yet I do not know where to start. I just moved to Colorado springs where the property values are escalating like crazy and difficult to find anything under 100K! I know that once I do a deal, the next ones will become easier; however I’m at a loss as to where or how to do the first deal. I make about 37K a year and have a credit value of just above 700 (I’m only 23 and have never owned a home). I rent because I’m new to the area and want to learn the city and values better. Should I negotiate a great deal from a motivated seller for my own home before I dedicate myself to investment property for holding or rehabbing? Should I flip–and if so, where do I find buyers for my options when I don’t even know where the clubs and auctions are to network with quick closing investors. Should I buy a 4 or 6-plex and live in one of the units till I can show that my tenents are paying the rent and providing income–and then use my own credit and income to lock in other properties to rent out or live in? Can I buy a property that costs more than my income can afford if it produces its own income already…local lenders I’ve talked to seem to say that my own income has to be able to pay the mortgage…yet I hear about people aquiring 10 or more properties in one year from almost nothing…how do I do this exactly? How do I find someone who can “hold my hand” on a deal or two so that I can become familiar and more confident with realestate investing.

My mind and heart tell me this is the right thing to do. The fact that I am insecure and unconfident at this point does not mean that I’m “dumb”…I’m actually very intelligent, have a college education, ambitious, and very motivated. I’m just scared and I literally lose sleep at night because it all seems almost self explanitory but I can’t seem to get the ball rolling because I don’t know where to start to gain that valuable first experience because it is all sort of related and I know that a deal or two will take away most of this beginning anxiety.

Please remember when you were just starting and how you dealt with all this stuff. Also, I want to thank you in advance for your comments because I do read and appreciate them even if I don’t respond back…

I sincerely hope that I can be another success story and educate those that are trying to begin just like me.

Fear, excitement, challenge–a matter of view (long) - Posted by Earnest

Posted by Earnest on March 27, 2000 at 20:04:45:

Take it from a slacker. I’m new to REI like you, so let me tell you what I’ve done. I’m 51 and have a Ph.D. but I’ve never owned a home. I’ve rented (burned money) all my adult life. I have good credit (“outstanding”, one lender told me) but no money. That’s because I’ve been burning money. I read my first RE book in Oct 99. I’ve read a lot of books in my life, and I know how much money you can make reading books(!) I closed on my first property Valentine’s Day 2000. I might have closed sooner but, being new, investors had a bunch of hoops they wanted me to jump through. I jumped though them.

I bought a 3-plex, soon to be a 4-plex with remodeling with an FHA loan @ 97% LTV–not good some may say, but it works for me. I live in one unit and rent the others. Doing it this way best suits my personal needs. My broker only makes money by making loans, and he knew I didn’t have any money. He found ways to reduce costs so that I could afford the loan. Thus, I’ve got only $2700 of my own money in the property. If I went bust tomorrow, I’ve lost $2700. That’s all. I would lose my “outstanding” credit, too, but what’s credit worth if you don’t use it?

I’m getting the $2700 back. I been approved for a remodeling loan that will get back my initial investment as well as eliminate about 18K in debt. That’s right, I’m in effect pocketing about $18,000.00. The remodeling loan is expensive, and on paper, the remodeling loan takes my not quite 20% over the appraised value. Remodeling adds a fourth rental income and improves the unit in which I’m living. But, using the income method of computing property value–basing property value on a loan amount the income could support–the loan takes the LTV to 95%, a slight improvement. (Other’s may disagree with using this method; I understand it’s not used much and you can’t base sales price on it, but I’m not selling. For right now, it’s the best figuring I can do since I’m not experienced in determining value once the remodeling is complete using more traditional methods.)

At these prices the cash flow is negative. I still need to use almost as much cash our of pocket as I was paying for rent for debt service. Of course, I’m paying it on my property, not someone else’s. My personal cash flow, however, improved by over $400.00 per month–the remodeling loan eliminates other debt, other monthly payments.

The FHA loan only requires I live in the property one year; I’ll decide what6 I want to do after that. I’ll refinance at some point, although I’m sure it will be 3+years before I can do that. In 3 years, however, I’ll know if I want to continue living here or buy another, etc.–I might well be happy to continue living here another 10-15 years. I’m VA qualified and have not used that option yet. It’s possible in 3 years I could build a small home to my specifications with nothing down, VA financing (and no loan insurance!) and use what will be by that time positive cash flow from my current property to make the installments. (Nothing wrong with dreaming, so long as one knows it’s just dreaming.)

In other ways, buying my first property has caused plenty of consternation. Sleeping hasn’t been as good and I’ve been more irritable, but these things will improve in time. One could lose everything tomorrow. The building could go up in flames. You might get run over by a hearse. Many things could happen. Others far more experienced than I might say I’ve done a poor job and should have looked for a better deal, and I’ve thought about that. But there’s a need to get my feet wet. I learned a lot this first time out. And there’s lots to worry about, if I feel like worrying. But disaster strikes no matter what. You don’t have to buy property to be susceptible to disaster.

After 51 years of slacking, I’m in a new game for me. It’s exciting AND it’s fearful. There is a need of sound and sober reasoning; its not at all like a roller coaster ride. A lot of homework needs to be done. Excitement, fear, and sound, sober reasoning and effort can go together.

Re: Please Someone Point me on a Clear Path - Posted by PatrickMD

Posted by PatrickMD on March 27, 2000 at 15:24:11:

Brian, how DO you get on the money mill?
Way back when, before there was such a wonderful group of people as, I met a creative investment real estate broker by chance. She changed my life and my outlook on life forever. I was making minimum wage, but I’d been holding down my employment long enough to qualify for a government susidized mortgage. “Of course you can afford to buy a house,” she told me. Then, she showed me how. It was a headache dealing with the Congressional program funding delays, but we landed our first new townhouse with the help our Uncle Sam. and a low down payment loan from my mother (shh! Why you can’t borrow the down payment, I’ll never know). The Farmer’s Home Administration had a sliding interest table connected to your income ability, figured on both my wife’s and my salary. At that time, they paid 9% and we paid 1% of the 10% interest. We had to occupy the house. Then, as our ability to pay more increased through time, our contribution rose and their’s fell. It was still very cheap. Then, life threw us a curve. My wife had to leave her job to deliver our second child with a promise of the job once she could return, but without paid leave. My job had the medical benefits covered, but what were we going to do about the mortgage payment? We crawled to the local Farmer’s Home administrator to explained, and you know what? She acted like it was perfectly NORMAL to have to leave work to have children! She re-evaluated our ability to pay, reduced the payments based on my salary, and amortized the difference across the thirty year period of the loan. When my wife returned to work, we were honest about it and let the administrator know. The rate returned to its previous level (which was still dirt cheap!). Wouldn’t we all be a lot more secure at night if all bankers thought that way?
We could sell the house after 5 years of occupancy and have our interest participation evaluated for possible payback to the fed. Some people had sold before the 5 year period and had to pay back 100% of the government interest share. We sold after 7 years. Not only didn’t we have to pay back the amount forgiven when my wife was out of work, they forgave ANY amount the fed had paid all those years at 9%! We never paid more than 4%!
I’ll take on anyone who’s got a bad thing to say about the Farmer’s Home Administration!
My wife had found a much nicer new house that the builder was stuck with. A couple had lost their jobs and couldn’t complete the purchase. I felt bad for them, but do you think that builder was a motivated seller? You bet! Do you think he’d cut us a two week slack to let us sell our house first? NO WAY! Our realtor arranged a bridge loan from another realtor who was a hard money lender (I’d never heard of it, but it worked). Then, our realtor came through for us, again. We sold that simple little 51K 3BR 1BA townhouse for 83K in ONE DAY to a third realtor’s sister & husband with no sign on the lawn. I couldn’t believe it. What was our yield on our no-money down deal? “Good enough!” says Lonnie. So, the moral to this tale from this stranger is, 1. Get the best help you can afford-housing programs, realtors, hard money lenders, family; 2. Negotiate with flexible sellers ONLY! 3. Buy what you can afford in this time period, on this budget (your future can change in the blink of an eye-don’t gamble); 4. Use the creative financing ideas from the pros on this web site.
On the “How To” section of, I personally like articles by: Scott Britton (Put cash in your pocket fast!); Lonnie Scruggs(the World’s Most Burned-Out Landlord explains how to buy low with cash, sell quickly and hold the note for a no-hassle income stream); William Bronchick (how to stay out of legal hot water legally); Joe Kaiser (So you want to be an investor…Here’s how with foreclosure rehabs.); and the most important to us all, Ms. J.P. Vaughan, editor of (How to buy real estate for 1/2 price with government programs). You sure can talk the talk. Have confidence you can walk the walk.

Re: Please Someone Point me on a Clear Path - Posted by chris

Posted by chris on March 27, 2000 at 12:14:08:

Hello there?

I claim to be no expert…but i can tell you the easiest way to begin in real estate is to acquire a property or two by financing. Then given more education, you can more on to “expert” deals such as l/o. Being a first time buyer, you should be eligible for lots of perks in an expensive market like you describe given your income level. Seek FHA loans on multi properties…live in one apartment. That way you only need 5% down.