Starting out

Four Reasons Why Partnerships Work In Real Estate Investing

by Brandon · 0 comments

What do Fred and Barney, Bert and Ernie, Abbott and Costello, and Starsky and Hutch all have in common?

Successful partnerships.

I am a big believer in partnerships.  I believe everyone is equipped with different skills, abilities, and positions in life and by finding the correct corresponding puzzle piece, you can achieve together much more than you can achieve apart.

In a recent post I suggested using a partner’s income and down payment to secure property. This is a technique I have used several times, with great success. I received an email recently asking how to overcome a potential partner’s objections to doing this.  The underlying question is

“why would a partner put down all the down payment plus their income and credit to get a 50/50 partnership when they could just do it by themselves?

This is an excellent question.  I am often asked this by others when I mention this strategy. The funny thing is – I have never been asked this by my partners. Why not? There are four reasons why this is not an issue and how to overcome those objections when they do arise:

  1. 50% is better than 0%.  The truth is, most people with good income, stable jobs, and perfect borrowing ability don’t invest. It’s not because of lack of resources, but rather a lack of knowledge and motivation.  The simple truth is that although they could buy a real estate investment on their own – they won’t.
  2. My 50% is worth it. It is important that a partner knows that although I am not putting any money into the deal it doesn’t mean I’m not putting anything into it. I am putting years of experience, knowledge, and deal-making ability into the deal.  In many cases, I am going to be running the day-to-day operations of the rehab (if needed) and managing the property for years to come.
  3. I’m selling a valuable product – When I seek out partnerships, I do not come “begging” for help. I am not looking for a favor. I am offering a solid return backed by years of experience and the probability of profit many times greater than the stock market. When I made this shift in my thinking, my investment world was transformed. I have the deal – I found it, put it together, ran the numbers, and got the property under contract. I have an amazing investment opportunity, and I am giving others the chance to be a part of it.
  4. The property is an amazing deal – I believe that if you have a great deal, the financing is the least of your concerns. If you are having difficulty finding financing or partnerships – you need to ask yourself: “Is this deal really that great of a deal?”  I only buy properties that cashflow extremely well and have great amounts of equity (its worth more than I owe) . I only buy incredible deals. If you do the same, you’ll find eager funding.

Will some partners still have problems with this? Yes.  They will say “Well, I could just do it myself.” However, when you find a killer deal and make it work, those same people will regret not working with you. They will see that they have done nothing while you made a killing. You can guess who will be first in line to be your 50% partner on your next deal.

 

 

 

 

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

Don’t (Just) Invest for Retirement!

by Brandon · 0 comments

I recently had the honor of having John Fedro write the first of three posts here on RealEstateInYourTwenties.com.  If you haven’t checked out his site yet head over there!

While you are there, check out the article I wrote for him as well! I wrote a post on his blog titled “Don’t (Just) Invest For Retirement.”  Make sure you head over there to read my article!
(Click Here To Read It!)

 

Peace!

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

How To Buy Real Estate When You Are Broke

by Brandon · 16 comments

Buying real estate costs money. However – it doesn’t have to be your money.  With the right mix of resourcefulness, creativity, and knowledge you can buy real estate with no money of your own. Don’t believe me? I speak from experience! Nearly every single property I have ever purchased has been without any money from myself.  The following are seven strategies that can help you buy real estate without spending any of your own money.

  1. Use Hard Money– hard money lenders are private individuals who loan on property based primarily on the value of the property (read my post on Hard Money Lenders here).  Although lenders have been tightening their standards in recent years, they still will generally lend 100% of the purchase price and possibly even repairs if the deal is good enough. They need to feel secure in their investment, so if you only need $50,000 for a property that is going to be worth $100,000 – you may not need to put in any money. Just remember though – lenders are going to be conservative on their values so don’t overestimate the future value.
  2. Use your Home Equity – Do you already own your own home? Did you know you can pull out equity in the form of a Home Equity Line of Credit (usually a variable but low interest rate) or Home Equity Loan (usually a fixed interest rate but higher) to use to buy an investment? Not only is this money relatively cheap to borrow, you may also be able to deduct the interest on your taxes (but see a CPA for details).
  3. Use a Partner – Do you have knowledge, motivation, and skill but lack financial resources? You are in luck! Much of the professional world has financial resources but lack knowledge, motivation, and skill! Use your networking skills to find others who have the missing piece in your strategy and become partners. Make sure that everything is spelled out clearly up front and everything is in writing.
  4. Raise Private Money: Similar to a hard money lender, you may be able to find wealthier individuals who want to earn more on their investments than the stock market or a savings account can pay. Many real estate investors will offer their clients a set 12-20% return on their investment, secured by a lien on the property. This creates security for the private lender and funds for the real estate investor. A true win-win.
  5. Use a Lease-Option –  A lease-option is a strategy used in real estate to buy homes from homeowners without actually taking legal ownership. Instead, the real estate investor signs a long-term lease with the house owners as well as signing a legal “option” to buy the property at a specific price in the future. The owners are not legally allowed to sell the property until the option period is up, and the investor gets to lock in his future purchase price as well. The investor can then easily rent the property out for cashflow or find a buyer to sell his “option” to.
  6. Buy properties “Subject-To” – Buying a home using a “subject to” strategy involves actually transferring legal title from the old owner to the new investor – without paying back the original mortgage that the old owners had.  While the bank may not appreciate not being paid back, as long as payments are continued to be made, usually the bank will either never find out or never care. This strategy is a bit riskier, but as long as you have a backup plan, it is perfectly acceptable.
  7. Use a Combination – Finally, you can mix and match using any of the above scenarios. Perhaps use a hard money lender to purchase the property and use a partner to refinance into a thirty year fixed mortgage after the repairs are done? Or perhaps use a lease-option until you can raise private money to cash out the sellers?

As you can see, there are a huge variety of ways to buy real estate without sacrificing your own money. If you are resourceful and the deal is a good one, you will have no problem buying real estate without any money of your own. Don’t let “I’m too broke” become an easy excuse not to invest.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

Check Out My Interview on TheBuyAndHoldGuys.com

by Brandon · 2 comments

Hey everyone,

Head on over to TheBuyAndHoldGuys.com and check out the interview I did with them. Make sure you “like” their Facebook page as well! These guys really know the real estate game and how to be successful at it.

Stay tuned also, later today I have a special blog post this afternoon.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

To Flip or Not to Flip: 5 Reasons NOT to Flip a House

by Brandon · 2 comments

We love the flipping reality tv shows. Shows like Flip That House, Flip This House, Property Ladder, and a dozen other television shows have been popular over the past several years (remember Armando Montelongo?)  The abundance of these shows has made “flipping” properties appear to be the only real estate method worth talking about these days.  However, is flipping really better than a long term “buy and hold” strategy?

For those new to the business, “flipping” a home is the process of quickly selling a property for quick profit.  These homes are sold within days, weeks, or several months.  Many times the home is quickly remodeled with new paint, flooring, appliances, and more. On these television show, the “flippers” often make tens of thousands of dollars over the course of several weeks.

In contrast, the “Buy and Hold” method of real estate investing involves purchasing a home (hopefully at a low price) and holding that property for a long number of years, collecting both monthly cashflow and future profit.

While both methods can produce income for investors (and I have done both over the past five years,) I am a firm believer in having as many “buy and hold” properties as possible.

Here are five reasons why buying homes for the long-term is more beneficial than flipping:

  1. Residual Income: When you “buy and hold”, you create monthly income versus a one-time payment.  When you stop “flipping”, the income stops. When you stop acquiring homes to “buy and hold”, the income on the properties you already own continue to come in.  True wealth is only found when your money is earning you money, rather than your labor earning you money.
  2. Tax Benefits: House “flippers” pay a much higher tax rate than long-term investors. Additionally, “flippers” can become classified by the IRS as “dealers” of real estate, thus subjecting their income to regular tax rates and self-employment tax (Social Security, Medicare, etc). Long-term investors pay only long-term capital gains tax (or often not using a 1031 Tax Exchange) and income tax on the monthly cashflow (which is generally largely or completely written-off with deductions.)
  3. Agendas: A house flipper is subject to numerous outside agendas that affect if and how success is found. Hard-money-lenders, private investors, future buyers, partners, and others all have an agenda and their best interest at heart. When you buy-and-hold, the main agenda is your own.
  4. Whims of the Market: When flipping a home, you are hoping that you can sell the home quickly, which is largely based on how the market is functioning in your town. Are there far too many homes being sold, causing yours to sit for months or years? When you hold a property long term you are not dependent on the whims of the market. You are able to sell only when it is advantageous to sell.
  5. Risk: When you flip a home, you have monthly carrying costs such as the loan payment, taxes, insurance that will add up each and every month until the home is sold. Additionally, there is the chance that there will be unforeseen costs that arise when repairs are being performed.  Both these items can blow the budget and eliminate any chance of making a profit. When you buy a home for the long term (and manage effectively), you can balance out your risks over a long period of time, lowering the chance of losing money and maximizing your probability of building serious wealth.

With that said, I do want to emphasize that flipping a home is not always bad.  Often times flipping a home, when done properly, can add a sizable amount of cash to your wallet – which can be added back into future buy-and-hold investments.  As the phrase goes, “it takes money to make money”. While I am a firm believer in the concept of using “other people’s money”, it is always easier to use your own.  I believe in flipping a home only when you lower your risks considerable. Blindly purchasing a home in hopes of selling it quickly for mass profit is not only stupid, but dangerous to your financial future.  Next time I am going to talk about how to lower your risk when flipping a home.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

6 Myths Exposed – Why Young People Shouldn’t Wait To Invest

by Brandon · 3 comments

Most investors wait until their forties, fifties, or sixties to begin investing in real estate. While there is nothing wrong with investing at those ages, there is an underlying belief among many young people that it is not possible to invest until a person is well grounded and experienced later in life. In the words of Dwight Schrute: False.

Investing in your twenties (and thirties) is not only possible, but beneficial. This post will look at six myths that hold young people back from investing and why waiting to invest is both unnecessary and detrimental to your investment plan.

I Don’t Have The Time –

Let me tell you a secret that the older generation all know – as you age you don’t get any more free time. In fact, the older you get, the more obligations seem to compile. Kids, career, home maintenance, civic activities, etc all seem to multiply as you mature in life. Unless you plan on waiting until you are retired to start investing, you are never going to have “more time”. Don’t use “I’m too busy” as an excuse not to invest. You can’t afford to wait.

I Don’t Have Enough Money

Money is important in investing in Real Estate. While “gurus” have made millions of dollars selling the idea that anyone can invest in real estate with no cash, credit, or problems – the fact is it does take money to invest. However, that money doesn’t have to come from you. You can purchase your first property with nothing more than 3.5% down, which depending on the program and current lending standards, can be a gift from a relative.
You can also use your own sweat and muscle in the place of money. For example, purchasing a property through a hard money lender (non-bank individuals and companies who can finance the acquisition and materials for repair based on the value of the property, not the value of your wallet), improving the property, and subsequently refinance the property with no money out of pocket.

I Don’t Have The Credit

If you have made mistakes in your early years regarding credit, or you simply have never used credit and therefore don’t have any, investing is not impossible. It simply takes another set of tools to make it happen.

First, you need to immediately begin fixing your credit. There are dozens of books online and at your local public library that deal with the issue of credit repair. Study these, follow these, and soon your credit problems will be a thing of the past.
In the meantime, you can try flipping properties or wholesaling properties. Additionally, hard money lenders do not generally care that much about your credit. If you find an amazing deal, the funding will be there. Also, it doesn’t take good credit to write up offers, to find motivated sellers, or contact other investors to sell deals to. Wholesaling property is an excellent way to learn the business, meet other investors, and earn good money – all without any credit involved.

I Don’t Know Enough

Knowledge is foundational to any real estate investor, but your age makes no difference in your ability to learn. The first step I tell any would-be investor is to invest first in their education. The internet is full of great posts (such as the Bigger Pockets blogs, forums, and articles) and your public library is an unending source of knowledge. (see more about gaining a free real estate education on my website).
One major advantage young investors have over the older generations is your ability to learn. As you age, your desire to pick up a book and learn or take a class on a subject decreases exponentially. You are not that far out of high school or college, so use those skills to learn how to invest. (Now, I do know many older investors who continually sharpen their mind through books, classes and other learning tools. However, I am speaking of adults in general).

I Don’t Want To Lose It All

Investing, by nature, involves risk. However, a smart investor knows how to invest with careful criteria and sound judgment, minimizing risk and maximizing financial gain. This, again, is true at any age.
No one wants to lose when it comes to investing. Who, though, is at the greater disadvantage when it comes to risk? Someone who is looking to retire in five years or forty years? Clearly, the younger you start, the more time you have to make mistakes and still recover.
I am not suggesting that you make risky choices- jut the opposite, in fact. However, don’t let fear of losing stop you from winning big. When you have forty years ahead of you before retirement, you are allowed to build that nest egg into a war chest. Investing $10,000 and adding no additional funds for forty years at a 15% interest rate (the minimum you should shoot for with any real estate investment) will result in almost three million dollars at the end. Now imaging what adding an additional $10,000 per year would do ($23 million, in case you were wondering). No wonder Einstein called compound interest the most powerful force in the universe.

I’m Not Stable Enough –

This is one of the largest complaints I hear from people when I encourage them to invest in real estate at a young age. Young people, by nature, are much more unstable in our lives. We change occupations, get married, have kids, move across town or across the country. However, this is used more often as an excuse not to invest than a reason.
If you were planning on moving to another state in six months, perhaps it doesn’t make a lot of sense to purchase a home. However, you can still learn the ropes by wholesaling a deal or two during this time to another investor, picking up on skills that will follow you anywhere you move in the world. The houses may change style, laws differ, and your income fluctuate – but the fundamentals of real estate are the same where ever you live.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

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