Re: Sorry, Difference of Opinion… - Posted by Ed Garcia
Posted by Ed Garcia on February 13, 2006 at 12:43:29:
Crassus,
I?d like to introduce myself. My name is Ed Garcia and I host the Real-estate forum on this site. Most people think I teach Real-estate financing and how to get lines of credit to buy RE, but the truth of the matter is, I teach Real-estate investing as a business.
I?ve been around this forum for about 8 years now giving advice and helping people. I also do a workshop called the Lenders Workshop or ?How to Get Lenders Fighting To Give You Money?. To attend my workshop you have to already have done investment real-estate, be a mortgage broker, real-estate broker, banker or of professional status. I tell you this so that you can see that I don?t prey on newbie?s or folks who will never have a chance to benefit from the workshop.
Now that I?ve given you a little history of who I am and what I do, I?ll give you the reason I?m answering your post. I don?t agree with your limited Real-estate experience.
A Prudent Real-estate Investor, can make money in both an up and down market.
It doesn?t take any talent to buy at market or 10% below market. The first 10% of a deal doesn?t even count. It is adsorbed by price negotiation and sales commission.
I?m a native Californian and I can tell you first hand that most people who called themselves Real-estate investors in California didn?t have a clue. You could be a Saint Bernard Dog in California and buy property over market value and make money. The reason is the market dictated it.
Again, I?d like to reiterate, people who buy property are not necessarily true real-estate investors. I have a high school friend who made 31/2 million dollars in Real-estate in California and can?t spell cap rate.
The problem with buying on appreciation is you have only one exit strategy, sell before the market goes down.
Yes I know there are guys out there who use a slide rule and try to predict the market when penciling their deals. Guys who play the margin have no room for error. Some of them do OK, some of them bite the bullet.
The foundation of my teaching is to MAKE YOUR MONEY on the BUY and CASH FLOW.
The reason being is in the event of a Market change, you have Cash-flow to wither the storm. You now have multiple exit strategies as well. You now have the ability to sustain a down market.
Now you?ve addressed what I?m saying in you post when you said,
I know appreciation is a dirty word in some creative real estate forums and the only valid way to invest is supposed to be the conceptually fool-proof way-buying below market and flipping or keeping for cash-flow but these methods, although they work for a good many people and are theoretically safer-after all you can’t be absolutely sure of future appreciation- aren’t always easy or feasible in a particular market and especially market cycle.
Not so. What you?re really trying to say is that they?re not easy to find. That?s my next point. Good deals usually aren?t easy to find.
Prudent Investors either recognize them or create them. They recognize them by finding properties with up-side and create them when negotiating them.
The most basic fundamental of upside recognized on this forum is buying a fixer upper house and flipping it.
The most basic fundamental of negotiating is terms and conditions or seller carry-back.
Crassus, at my workshop, Many of my students have attended other workshops where they have learned a technique, system, method such as lease/options, short sales. Land contracts, etc. Great, the problem is many of them either get tunnel vision and locked into the system they?ve just learned because of lack of experience or don?t know when or how to use it.
If I had the time, I?d give you my assessment or opinion of where I think the California markets going as well as the various markets that I deal with through out the country thanks to working with my students which are nationwide.
However that?s wasn?t the reason for my post. The reason is to explain that most people think they know how to deal in a down market however when it happens going along with the theory of buy low, sell high, then the complaint will be that there are no buyers.
I think for the most part investors have a problem buying in a Hot Market, therefore I?m enclosing an article I wrote a while back for California Investors that hopefully explains my attitude and mentality of Prudent REI.
My post is not intended as an attack, but a difference of opinion of a REI who?s been a REI since 1973 and has owned his own mortgage company since 1980.
HOT MARKET and PRECEPTION:
The one thing that working with people on the Internet has taught me is the differences in the market across the country. For me it is also an eye opener. At first I felt just like any other investors in a HOT MARKET because, I was PRODUCT of my ENVIRONMENT.
It was difficult for me to find deals and because of that, after a while you start to fade and give up, because if you?re having trouble finding a deal, and keep hearing that there are no deals out there, after a while you find yourself buying into it.
The things you don?t do in a HOT MARKET, is stop making money on your buy or give up cash flow. I can?t tell you how many people are satisfied just doing a deal to do a deal at break even, and assume that they?re going to make their money with future appreciation. Pass, that?s not the way to do it.
First of all let me say that I own property outside of my own state and am not afraid of investing in another state. For me it would have to be a respectable size deal, not a house, because of management intensiveness. The deal has to make me enough money that it will justify paying for my occasional visit to oversee it in addition to a good return.
I?ve got to tell you that I got an eye opener at my very first workshop. That?s right, old Garcia learn from his own workshop. On Saturday nights we have an open floor discussion, and each investor can present the deal that they?re doing or any deal they?re having a problem with. That was when I first realized that every investor sees a deal differently. Different size deals, different market, different ways that they would structure their deals, different thinking. For example if you have an investor that was taught the business by doing lease/options. Every time he would see a deal, he would see it through the eyes of a guy who does lease/options and he would try to structure it to do a lease/option. I immediately saw the light and how each investor was trapped by there own limited knowledge or technique.
Now not to make an investor who does lease/options look dumb. If you do a lot of lease/options, you become good at it, even masterful and now your confidence is where you project and the sellers in turn will have confidence to do a deal with you. So this is just one example of what I?m talking about.
We would discuss different ways the same deal could be done and then someone from Missouri, who is drinking a beer, would raise his hand and give you a way to do the deal that was so simple, that you realized that you missed the obvious.
We obviously would talk about the different markets and come to realize that if you were going to be successful in this business and RE investing is a business, you would have to be able to survive in the different markets.
Now for the part of the post you really want me to address, HOT MARKET. How do you handle a hot market? How do you do deals and make money in a HOT MARKET.
I haven?t had a salaried job since 1972. So you can see that I?m a serious investor and don?t play. When I was learning this business the guys that knew it would never give you any information in a million years, in fear that the next time that they see you, you?ll be bidding against them. We didn?t have Creonline and the various courses and information that is being provided. It was us and the street.
I must tell you that a HOT MARKET is going to be particularly hard on a part time investor. The reason is obvious, because they work and have a family to spend time with; they?re not in a position to spend quality time in the street knowing everything that is going on in their market. They haven?t the time to network, canvas, build a reputation as an investor, or spend the time needed to search or find deals. They?ll usually dependent on a Realtor and those of us that are full time we know what we think about dealing with Realtors.
PERCEPTION or ATTITUDE of a real-estate investor is the key to their success. Not knowledge, Not Market Place. If you have the right attitude you?ll gain the knowledge, and you?ll learn how to survive the various markets.
Lets talk about PERCEPTION and ATTITUDE:
Two-shoe salesman from competing companies in the early 1900’s were told they were going to the continent of Africa to open up a new market for their respective companies. They were to go with a few samples, and while there drumming up business, a steamer would be dispatched with an entire inventory to deliver on the orders.
The first salesman got off the plane, looked around and immediately telegraphed this company.
“Turn back the shipment! There is NO market here. NOBODY wears shoes!”
The second salesman got off the plane and looked around and immediately telegraphed his office.
"Double the shipment immediately! TONS of potential business here! NOBODY WEARS SHOES!!!
Lets talk about PERCEPTION and Donald Trump. Most people see things for what they are. Donald Trump sees thing for what they could be. When you?re in a hot market you need to take the Donald Trump perception or attitude and CHANGE THE RULES.
Don?t buy the way the market dictates, but create a market with in a market.
Now for those of you who will tell me that you can do FLIPS or LEASE/OPTIONS in any market, I?m aware of that but the profits are minimal and you have to do a lot of them and in doing so you now have a job.
Look for other properties that you can make money with that others are passing buy or don?t have the vision to see the up-side potential of.
Example:
Buy a lot and build a house.
Buy land and subdivide it into lots.
Buy a house that is zoned for units and build units.
Buy apartments and convert them into condos.
Find small homes such as a 2-bedroom house in a high dollar area, that could be renovated or a tear down to rebuild to accommodate the comparable larger housing.
Look for opportunities such as apartments with below market rents that will give the apartments upside, increasing the income and in turn increasing the value because when purchasing commercial property you?re buying an income stream.
I could go on with this but I?m sure you?re getting my drift. You need to open your eyes and stop accepting the fact that there are no deals. Don?t listen to realtors, as I said before were all product of our environment and realtors make their living in retail sales, so to find a deal through them will be difficult. When they see how you want to buy, they?ll tell you that you?re unrealistic.
Well this post is 5 pages long and if it helps just one person reading it, it?s done its job.
Thank you,
Ed Garcia