Using Leverage - Posted by KPFarris

Posted by Ed Garcia on July 30, 2003 at 10:44:33:


In my opinion if I were to start a new REI company here are the basic fundamentals I would follow.

  1. By the title of your post, know how to properly use leverage, and not just borrow from one property to purchase another. Good leverage would be a WLOC, using OPM (Other Peoples Money) as well as seller carry-backs.

  2. You make your money on the buy. Being a prudent buyer builds in a protective measure that will be an insurance policy in a market change.

  3. CASH FLOW: If we make our money on the buy then that should induce our Cash Flow. Even if we don?t buy to hold, the property must cash flow in the event you get caught in a market change and can?t sell without a loss to get out of it. If you can?t sell with out loss, you can hold with a positive cash flow. That?s a nice way to wither a storm isn?t it.

  4. Many investor feel comfortable to buy and hold, thinking that the houses will build equity over a period of time and enjoy cash-flow, write off, and appreciation. However as an investor that?s old thinking. Today we feel that a fast nickel is better than a slow dime. Having the capability to turn properties, will increase profits 10 fold compared to holding. Bare in mind, that properties will maximize so wouldn?t it be better to sell a property, pull profit to do it again, and again, and again, rather then to hold the property and hope that it will appreciate 5 to 7% next year.

  5. KP, real-estate can be forgiving. You can buy it and hold it and do nothing and still make money. However the key is like playing poker, you have to know when to hold them and know when to fold them. As said before, property values can vary, however commercial properties make money by design, they are different then just buying a house. So if do wish to hold then I would buy Apartments, a commercial building, Strip Center, Shopping Center, Office building etc. When you purchase a commercial property, our buying an income stream and the value of the property will be cased on income. In a workshop I do with Terry Vaughan this is what we call ?Think Bigger? it?s important that we have goals, and direction in our investing. We need to understand not only where we?re at and we?re we want to go, but how we?re to get there as well. If you don?t know how you?re going to get there, then it just conversation.

KP, I hope that this little piece has given you some food for thought, have a nice day,

Ed Garcia

Using Leverage - Posted by KPFarris

Posted by KPFarris on July 30, 2003 at 08:40:29:

I have posted a couple of issues in the past on the main message board but now am seeking some guidance about my capital. I will be leaving my family’s companies in September with a buy out of stock valued at $560,000.00 gross. I should net after capital gains taxes in the ballpark of $480K.

I am 37 years old, married with 2 daughters and live in Virginia. I have been studying REI for about 3 years now, have owned some properties and have flipped a house but that is the extent of my experience. I feel comfortable now to make this move and starting my own REI Company. I’m not planning on working this as a hobby but as a true business as I have for the last 10 years working with my family.

My question for this forum is what is the best way to invest my money into my company gaining for myself the best leverage with lenders? I want my money to provide income immediately that will supplement my income producing properties. I am interested in foreclosures as a possible area of concentration to start with but would like to develop a good knowledge of many other fields in REI.

I’m curious if anyone on this forum would have some insight, experience, or opinions I have not considered?

Thanks for all replies.

Re: Using Leverage - Posted by David

Posted by David on July 31, 2003 at 09:50:54:

KP, there are ways for you to take your money and develop lines of credit against them. That way your money stays in the bank. I am an investor in Chicago and Indy and that’s what we do. I am working with a commercial company that has helped us leverage our resources up to 3 to 1. We then us this leverage to do short term deals with above average returns. (90 to 120 days average deal)

If you don’t have REI experience yet, just book knowledge, I would recommend that you work with someone that is seasoned through JV and by all means continue your education. If you need help email me at

Re: Using Leverage - Posted by David

Posted by David on July 30, 2003 at 23:12:40:

KP, I do not know were you stand as far as REI education, but if I were you, but this may not apply. Invest in some REI education. Weither it is $125.00 homestudy course or $10,000 worth of seminars, I would rather invest $10,000 in education and then never have to spend any of my own money ever agian because I knew what to do, than investing $100,000 of my own money and lost it because I did not know what to do. Now like I said maybe you knew enough for now, and this does not apply to you. But when I first started all I had was a $5000.00 limit on a credit card. I invested in my education, then made more money than I ever though possible, and never had to use my own. (Thank goodness, because I did not have any!) If I would of had alot of money, I could have really screwed up and lost it all and hated RE. When you truly have a good deal, and you have the knowledge to know what to do with it. You should not have to use your own money.
Just my thoughts.
Good Luck

Re: Using Leverage - Posted by Jasonrei

Posted by Jasonrei on July 30, 2003 at 11:37:59:

You should loan me the money :wink: