Sophmore Blues - Advice - Posted by Thomas

Real Estate Investing
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Posted by Killer Joe on May 04, 2006 at 24:38:53:

Larry,

You’ve discovered another secret here as well. -Telling everyone you come in contact with, what it is you do.-

If you’ll pardon the real world example…This week I was talking to a tractor salesman about, you guessed it, tractors, when the subject of REI came up. Turns out his wife is pregnant and he will be putting a commercial property on the market in the next few months. They haven’t formalized a plan yet. I bet you know where I’m going with this…

Keep your blood boiling,

KJ

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Sophmore Blues - Advice - Posted by Thomas

Posted by Thomas on May 02, 2006 at 22:04:32:

SO i’ve been actively investing for 6 months now, and haven’t made a dime in cash, made about 50k in equity. But I’m frustrated

I formed a company with my best friend/ business partner, and our first buy fix and flip was supposed to close in Jan, still hasnt closed, and our profit shrunk from projected 25k to about 7 and a half.

Our second project we assumed the loan as the seller was going into foreclosure, and then got surprised by about 20k more in repairs than we thought, PLUS the loan has a prepayment penalty, so we need to sit on it for at least a year, that property went from 45 in profit now to about 25 ( a year from now) I figure we’ll sell that using seller financing wiht a baloon due a year from now

We have another preconstruction deal that we took out money against our house, and put it as a downpayment for a luxury condo , that was supposed to be finished in feb, now its may and the end doesnt seem anywhere near.

And ironcially my partner and i just got into a basically nothing down deal for a 3 unit condo complex that the seller was in some hot water in, we were able to get the buidling with about 80k of equity in it, in a rapidly redeveloping area of town - ( and the seller held the notes on one of the units with no payments for a year!)

but nontheless, i feel like i’ve hit the wallI’m just tired, I’m broke ( i got 200 bucks in my account)and just really looking for soem “get back on track” advice.

With all of this stuff hanging up in the air, i’ve actually become overcome with paralysis and havent been working at finding any new deals, i’ve found myself kind of nervous about everything else going on.

I’m pretty sure i know the answer, but any helpful advice to get my ship rockin and rollin again, anyone whos been there before.

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Re: Sophmore Blues - Advice - Posted by Eric (MI)

Posted by Eric (MI) on May 04, 2006 at 14:06:40:

None of those sound like deals to me. I can’t see myself being allowed to be “suprised” by $25k in expenses I had not anticapated and maybe I am overly conservative but I would not have touched ANY of those “deals”.

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NEWBIES SHOULDN’T DO REHABS! - Posted by IB (NJ)

Posted by IB (NJ) on May 03, 2006 at 23:13:30:

It takes a LOT OF KNOWLEDGE and EXPERIENCE to buy right and successfully complete a rehab. This is why I say that newbies shouldn’t do them. Instead newbies should wholesale. By wholesaling deals you get a chance to:

build your cash reserves - absolutely MANDATORY if you’re going to be doing rehabs.

network with rehabbers who may let you browse their work site as they rehab a property you wholesaled them

learn how rehabbers crunch numbers.

1)Newbies should wholesale.
2)More experienced investors should rehab
3)experienced rehabbers should buy cheap and hold for long term investing.

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Re: Sophmore Blues - Advice - Posted by Natalie-VA

Posted by Natalie-VA on May 03, 2006 at 10:57:22:

Thomas,

Ken Holmes gave good advice here. I would focus on what you’ve already got and line up your exit strategies. I wouldn’t look for any new deals until you’ve got your arms around what you’ve already got.

–Natalie

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Re: Sophmore Blues - Advice - Posted by jason

Posted by jason on May 03, 2006 at 09:36:51:

keep rolling. if you stop now, you lose. forge ahead. you’ll look back and chuckle at this conundrum some day

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Re: Sophmore Blues - Advice - Posted by Mark (SDCA)

Posted by Mark (SDCA) on May 03, 2006 at 08:43:55:

I agree with what everyone else has written. But here is the good news.

At least you are doing SOMETHING. Not just reading about doing something. Not just thinking about doing something. Keep doing it- just refine your approach.

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Re: Sophmore Blues - Advice - Posted by Ken Holmes

Posted by Ken Holmes on May 03, 2006 at 07:19:07:

Thomas,

  1. Pre-conatruction “deals” are gambling on appreciation, not real REI where you are guarateed basically a profit due to your below market price goiing in. It is OK to gamble when you have extra money that you could lose, but not at your stage in your RE career. Stay away from those.

  2. You have 2 deals that you are holding and/or renting. One with a prepayment penalty that surprised you and the 2nd with 80K equity. Dump the 80K equity deal ASAP and get as much cash as you can - you need it.

  3. Don’t fret, you are learning! On one deal you expected a 25K profit and might make 7. Look at it this way, where else can you get an real world education in RE and get paid to do it? Many people go to MBA school, Law school, or get their masters degree and pay dearly for it. You will make money getting this education. Next time you will do better. Learn from your mistakes, get better, and move on to the next deal.

  4. This is it. This where you figure out what you are made of. All potential REI go through this, and most quit. Those that don’t quit can perservere. What will you do? Sounds to me that you can salvage most of this and still make money. You won’t make the pre-payment mistake again, will you? You will be better at estimating repairs next time, won’t you? Get through these deals, make what you make, analyze each deal for what you need to learn, and keep going.

Ken

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Re: Sophmore Blues - Advice - Posted by Larry K

Posted by Larry K on May 03, 2006 at 05:57:47:

I may not be the right one for advice since Ive only been investing for about 3-4 years (only 2 seriously). Bt I do know that you better either get to looking for real deals and figure out how to finance them or get another job. I wish I could quit my dayjob to have more time to work on REI, but I cant. I cant live off of $10,000/year cash flow and $250k equity and the banks probably would be less favorable without my “guaranteed” income coming in. I spend 40-50 hours per weed on my “day” job and probably another 25-35 hours /wk on REI looking for deals and rehabbing properties, trying to expedite my business plan. Its easy and hard, automatic and time consuming, fun and a pain in the butt. Just like life.

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Re: Sophmore Blues - Advice - Posted by Joe Kaiser

Posted by Joe Kaiser on May 03, 2006 at 24:28:38:

What’s your definition of “a deal?”

None of deals things are anything I’d get involved in. I’m not that brave
and don’t handle risk well.

You need Profit, you need 10x ROI, and you need Certainty. Without
each of those, you’re just rolling the dice.

Step One, figure out what makes a deal, a deal.

Joe

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Re: NEWBIES SHOULDN’T DO REHABS! - Posted by The Frisco Kid

Posted by The Frisco Kid on May 04, 2006 at 14:24:07:

I agree sort of with you, but I definitely agree with Natalie. My first real estate transactions were rehabs, I started at 16 with my 19 year old married brother. We didn’t even have a clue about wholesaling until we were complaining to an investor about putting to much on our plates and he suggested that we wholesale one of our deals to him, which we did.

So later we would wholesale about three and rehab one. The rehab experience made the wholesale experience much easier. But I agree most newbies should start at the wholesaling level first, to generate some money, and to acquire knowledge at a faster rate.

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I’m Backward - Posted by Natalie-VA

Posted by Natalie-VA on May 04, 2006 at 07:52:17:

Hi IB,

I hear that advice a lot from the pros. I just wanted to mention that I did the opposite. My husband and I started out in early 2000 doing rehabs. By the end of 2005, we were completedly burned out. We decided to try our hand at wholesaling this year, and so far, so good! We’ve completed 5 deals so far in 2006 (done, closed and collected) and are working on 4 more that should close in the next month or two. Profits range from 5k to 50k.

The reason I say all this is that I don’t think I could have successfully wholesaled these properties without the experience I earned doing the rehabs. When you’re buying to rehab, you’ve got to disect the market and the repair costs to really understand where your numbers will fall. I haven’t found any newbie wholesalers who know how to do this. It takes experience IMO. It also takes money. On some deals I sold the contracts; others I have closed and resold.

I know I’m in the minority, but wanted to share another opinion on this topic that I see posted so often.

–Natalie

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Nice post Larry… Solid points made. - Posted by JT-IN

Posted by JT-IN on May 03, 2006 at 12:37:29:

Larry:

Your description of your tenacious and balanced attitude, and grounded direction of keeping your “Day Job”, along with the steady income and bennies, and performing all that must be done to “be in the RE game”, until such time as you can truly AFFORD to make that move is fantastic. You are doing the right thing busting your hump with the JOB, and the RE career on the side, which will deliver you where you want to go… long term, and not have to re-trace those steps at a later time, due to premature entry.

Everybody wants to be out of the rat-race, saying goodbye to the JOB, but knowing when the timing is right will make the all difference for you. Additionally, all too many folks really aren’t honest with themselves with all the points that you make above, about how darned tough it is to make it.

Good luck… oh wait, you don’t need LUCK, cause you are executing your plan, moving the pawns amongst the board of Larry’s Life… until you can say, “Checkmate”.

JT-IN

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Re: Sophmore Blues - Advice - Posted by Joe Kaiser

Posted by Joe Kaiser on May 03, 2006 at 24:50:06:

Next time I’ll try to respond in English . . .

None of these deals are anything I’d get involved in.

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Re: I’m Backward - Posted by IB (NJ)

Posted by IB (NJ) on May 05, 2006 at 08:20:47:

Hey Natalie. Yes I agree that rehabbing experience makes wholesaling easier but that’s a learning curve that wholesalers need to deal with.

The fact is that there are too many would-be investors who never get to posts happy-ending stories like yours because they end up broke and burnt out trying to start their REI careers by rehabbing.

Look at all the newbies who posts here with disaster stories on their first deal which happens to be a rehab. These stories are time-tested testimonies that newbies should hook up with a contractor who knows rehab costs and start by wholesaling deals.

Just my opinion.

Ib

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It gets in your blood . - Posted by Larry K

Posted by Larry K on May 03, 2006 at 16:27:57:

Thank you for the kind words. I cant get over the network of investors willing to help each other on this web site. It does get in your blood. I was at the appliance store today and the sales person asked me how I got into renting property because he would like to start building soon. I had this urge to tell him everything I know. I almost felt an obligation to tell him what I know. So I have answered my own question earlier on this board as to why so many successful investors sell their time teaching or writing as opposed to spending it investing. Everyone loves to make money, but I can understand the desire to share information with others that have a strong desire to hear it.