Post by Brian Gibbons on Mar 19, 2005 3:22:57 GMT -5
Getting the Money for Your Deals
Author: Unknown
“The freedom to fail is vital if you are going to succeed.” Michael Korda
This is the chapter no one really wants to talk about— gathering money for your real estate deals.
And I don't blame them; with all the hype on TV and on the Internet about how to buy houses with no money down and create a quick real estate fortune, I can see how people get agitated when they hear from us that you need money to make money in this game. I'm not saying you need a fortune, but you're going to have to shell out some cash for every real estate deal that you do.
The good news is it doesn't have to be your money and it doesn't have to be gone for that long! I'm sure there are sellers that will sell their properties with no money down, but what about the rest of the people involved in a real estate transaction?
Who's going to pay the realtor, title insurance policy, homeowner's insurance policy, appraiser, etc.?
These people don't work for free. I learned that the hard way.
In the beginning of my career, I wrote about 20 offers to purchase properties with creative no-money down financing, and every single one of them was rejected without even a counter offer.
And I didn't place offers on luxury condos or commercial buildings, either.
Every one of those houses needed some cosmetic work and were in areas of low property values.
So why were they rejected?
The sellers want money. They're
no different than you or me; they have to pay their bills, buy groceries, take vacations, etc. You have to put yourself in the seller's shoes every time you make an offer. For example, ask yourself if you had a property with $15,000 in equity, would you rather take $11,000 up front and split or take $80 a month for 15 years?
OK—in the above example, look at it as if you were a seller and see what you could do with an extra $11,000. A whole lot! Put money down on a new car, finish the basement, put up a fence, pay off college loans—you bet an extra $11,000 would come in handy! Then take a look at what you could do with an extra $80 a month. Practically nothing.
Now I don't object to real estate deals that have the seller take back a significant amount of money for a short period of time, like two weeks to 30 days. This is the technique I'll go over in future chapters; how we're going to leverage an all-cash deal, just by knowing the financing. This is where we can make a killing!
Okay, enough on why you need money. Let's go get some!
How to get money for your real estate deals:
1. Use your own cash.
Of course, this will apply to only some of you, but it really is the most effective, low-risk way. This should be your long-term goal—to buy real estate all in cash. I know, you're thinking yeah, right! Well, that's what I thought before I started using the techniques I'm going to teach you. So keep an open mind. Of course, you don’t have to use every dime you have; you can focus on maybe getting a loan for half and then using half of your own money. It sure makes things work faster, but it’s not applicable to many people starting out.
2. Post investor-related ads in the real estate section of your local newspaper.
This actually works really well, but it will take some selling on your part. For the most part people hate selling, but I've seen people look at it in a different light when they see a $30,000 profit staring at them in the face.
Take a look at a sample ad I placed:
Earn 10% on your money in as little as 45 days guaranteed!
100% secured investment!
Call xxx-xxx-xxxx
Investors jump at a chance to get into these types of investments. 10% in a little over a month is an unbelievable return. The best part about real estate is that you don't have to give up much of your profits. For example, let's say you borrowed $10,000 for a down payment on a property. The interest you would pay the investor would be a measly $1000. And if you're looking at the right properties (like the ones I'm going to tell you about) there should always be at least $15,000 profit left on the table before you even enter a contract. I don't know about you, but I would spend $1000 to earn $14,000 any day of the week!
3. Apply for a Personal Loan.
These are the types of loans you can get from finance companies. Let's take a look at some pros and cons of personal loans:
Pros of Personal Loans:
a. Fast approval. Most loans can be applied for and approved the very same day, which means fast cash in your pocket!
b. You don't have to have A-1 fantastic credit to get one of these loans.
c. Most of them do not have a pre-payment penalty! Always ask this question before you accept any loan. Know that some prepayment penalties can add up to hundreds or thousands of dollars, depending on the size of the loan. Keep a watchful eye out!
d. Most of them do not require collateral. So this means you don't have to put up your house or car to get the loan. That makes things a lot easier, especially with your wife or girlfriend! (Or your boyfriend or husband, to all of the female investors reading this!)
e. These types of loans are easy to find. Just look in your local Yellow Pages under finance companies or loans; I'm sure you have quite a few pop up. In case you don't, you could always go online and look through the search engines; type in "personal loans," and you'll find more than you'll know what to do with.
Cons of Personal Loans:
a. One bad thing about personal loans is they command a higher interest rate. Some of these loans can be anywhere between 18 to 26 percent interest. So in other words, you don't want to keep this type of loan open for long. But as I said before, if you have to spend $1,000 or so to make $15,000 it's still worth your time. Just make sure the deal is right because you can lose $10,000 to $15,000 just as fast! I know this from personal experience.
b. Usually these loans have a pretty high monthly payment. So they can eat you alive if you keep them open for even just a few months.
As you can see, the pros outweigh the cons, but that doesn't mean that personal loans are a perfect solution. As I said before, you can lose a quick $15,000 by using one of these loans if you're not targeting the right type of property. So you use your own judgment and your own expertise. But in my opinion, you should only use these loans if you find a deal with an easy $10,000 or $15,000 profit. Profit doesn't mean equity—you can't spend equity, you can only spend cash.
And now, let me introduce my own insane financing technique! This is for people who like to swim with sharks!
(Before I go into the next section, I want to warn you that some of the techniques I teach are very risky. I want to be perfectly honest with you; these are techniques that I used and other real estate investors used to leverage ourselves in the beginning when we didn't have a lot of money.)
So use extreme caution when you decide to use these techniques! Some are very risky and can lead into huge losses for you and your family if you don't know what you're doing! So play it safe when you first begin, until you can accurately estimate profits just by looking at the deal. Yes, you will learn how to do just that from this book!
And here it is—
The Credit Card Fortune
A lot of real estate investors including myself have used this technique to buy properties at all cash price and take advantage of the leverage by doing that. This is a very risky technique so be careful.
Basically this is how it works: a person with average credit will find as many credit card applications as possible and apply for them all at the same time.
By doing this, the person with average credit can easily get a credit line of $20,000 or more. So, the insane and wild investor will take a $20,000 cash advance on his credit card to buy the property of his choice.
To use this $20,000 he'll probably end up paying $22,000 back.
Again, not that bad if you know what you're doing.
But before you do this type of technique, you better know how to sell the property in a week or two, or the interest will take every dime of profit and then some!
By the way, selling a property in a couple of weeks is not that big of a deal; you'll learn more about it in future chapters.
There are actually books you can buy with thousands of credit card companies phone numbers and addresses. A friend of mine once applied to 160 credit cards in 48 hours!
A lot of people think I'm crazy to use that type of financing, but it's not much riskier than getting a sub-par mortgage at outrageous terms. Take a look at a real life example of one of the properties I used bank financing for:
We bought the house for $25,000 with an estimated value of $60,000 fix-up.
We got a $20,000 mortgage on the property (take a look at the fees we had to pay:)
1. Loan origination fee: $2500
2. Appraisal: $300
3. Title and closing fees: $1700
4. Underwriting fee: $650
5. Survey: $175
6. Prepayment penalty: $1500
(This means if I sell or pay off the house anytime within 3 years I will have to pay the penalty. Think about it—with all the equity on the table, you'd better believe I'm going to sell within three years so I can get paid!)
Total: $6,825 (in b.s. fees!!!)
Although I made money, I still lost at least $4000 by not buying the property with all cash or credit card cash.
continued...
Author: Unknown
“The freedom to fail is vital if you are going to succeed.” Michael Korda
This is the chapter no one really wants to talk about— gathering money for your real estate deals.
And I don't blame them; with all the hype on TV and on the Internet about how to buy houses with no money down and create a quick real estate fortune, I can see how people get agitated when they hear from us that you need money to make money in this game. I'm not saying you need a fortune, but you're going to have to shell out some cash for every real estate deal that you do.
The good news is it doesn't have to be your money and it doesn't have to be gone for that long! I'm sure there are sellers that will sell their properties with no money down, but what about the rest of the people involved in a real estate transaction?
Who's going to pay the realtor, title insurance policy, homeowner's insurance policy, appraiser, etc.?
These people don't work for free. I learned that the hard way.
In the beginning of my career, I wrote about 20 offers to purchase properties with creative no-money down financing, and every single one of them was rejected without even a counter offer.
And I didn't place offers on luxury condos or commercial buildings, either.
Every one of those houses needed some cosmetic work and were in areas of low property values.
So why were they rejected?
The sellers want money. They're
no different than you or me; they have to pay their bills, buy groceries, take vacations, etc. You have to put yourself in the seller's shoes every time you make an offer. For example, ask yourself if you had a property with $15,000 in equity, would you rather take $11,000 up front and split or take $80 a month for 15 years?
OK—in the above example, look at it as if you were a seller and see what you could do with an extra $11,000. A whole lot! Put money down on a new car, finish the basement, put up a fence, pay off college loans—you bet an extra $11,000 would come in handy! Then take a look at what you could do with an extra $80 a month. Practically nothing.
Now I don't object to real estate deals that have the seller take back a significant amount of money for a short period of time, like two weeks to 30 days. This is the technique I'll go over in future chapters; how we're going to leverage an all-cash deal, just by knowing the financing. This is where we can make a killing!
Okay, enough on why you need money. Let's go get some!
How to get money for your real estate deals:
1. Use your own cash.
Of course, this will apply to only some of you, but it really is the most effective, low-risk way. This should be your long-term goal—to buy real estate all in cash. I know, you're thinking yeah, right! Well, that's what I thought before I started using the techniques I'm going to teach you. So keep an open mind. Of course, you don’t have to use every dime you have; you can focus on maybe getting a loan for half and then using half of your own money. It sure makes things work faster, but it’s not applicable to many people starting out.
2. Post investor-related ads in the real estate section of your local newspaper.
This actually works really well, but it will take some selling on your part. For the most part people hate selling, but I've seen people look at it in a different light when they see a $30,000 profit staring at them in the face.
Take a look at a sample ad I placed:
Earn 10% on your money in as little as 45 days guaranteed!
100% secured investment!
Call xxx-xxx-xxxx
Investors jump at a chance to get into these types of investments. 10% in a little over a month is an unbelievable return. The best part about real estate is that you don't have to give up much of your profits. For example, let's say you borrowed $10,000 for a down payment on a property. The interest you would pay the investor would be a measly $1000. And if you're looking at the right properties (like the ones I'm going to tell you about) there should always be at least $15,000 profit left on the table before you even enter a contract. I don't know about you, but I would spend $1000 to earn $14,000 any day of the week!
3. Apply for a Personal Loan.
These are the types of loans you can get from finance companies. Let's take a look at some pros and cons of personal loans:
Pros of Personal Loans:
a. Fast approval. Most loans can be applied for and approved the very same day, which means fast cash in your pocket!
b. You don't have to have A-1 fantastic credit to get one of these loans.
c. Most of them do not have a pre-payment penalty! Always ask this question before you accept any loan. Know that some prepayment penalties can add up to hundreds or thousands of dollars, depending on the size of the loan. Keep a watchful eye out!
d. Most of them do not require collateral. So this means you don't have to put up your house or car to get the loan. That makes things a lot easier, especially with your wife or girlfriend! (Or your boyfriend or husband, to all of the female investors reading this!)
e. These types of loans are easy to find. Just look in your local Yellow Pages under finance companies or loans; I'm sure you have quite a few pop up. In case you don't, you could always go online and look through the search engines; type in "personal loans," and you'll find more than you'll know what to do with.
Cons of Personal Loans:
a. One bad thing about personal loans is they command a higher interest rate. Some of these loans can be anywhere between 18 to 26 percent interest. So in other words, you don't want to keep this type of loan open for long. But as I said before, if you have to spend $1,000 or so to make $15,000 it's still worth your time. Just make sure the deal is right because you can lose $10,000 to $15,000 just as fast! I know this from personal experience.
b. Usually these loans have a pretty high monthly payment. So they can eat you alive if you keep them open for even just a few months.
As you can see, the pros outweigh the cons, but that doesn't mean that personal loans are a perfect solution. As I said before, you can lose a quick $15,000 by using one of these loans if you're not targeting the right type of property. So you use your own judgment and your own expertise. But in my opinion, you should only use these loans if you find a deal with an easy $10,000 or $15,000 profit. Profit doesn't mean equity—you can't spend equity, you can only spend cash.
And now, let me introduce my own insane financing technique! This is for people who like to swim with sharks!
(Before I go into the next section, I want to warn you that some of the techniques I teach are very risky. I want to be perfectly honest with you; these are techniques that I used and other real estate investors used to leverage ourselves in the beginning when we didn't have a lot of money.)
So use extreme caution when you decide to use these techniques! Some are very risky and can lead into huge losses for you and your family if you don't know what you're doing! So play it safe when you first begin, until you can accurately estimate profits just by looking at the deal. Yes, you will learn how to do just that from this book!
And here it is—
The Credit Card Fortune
A lot of real estate investors including myself have used this technique to buy properties at all cash price and take advantage of the leverage by doing that. This is a very risky technique so be careful.
Basically this is how it works: a person with average credit will find as many credit card applications as possible and apply for them all at the same time.
By doing this, the person with average credit can easily get a credit line of $20,000 or more. So, the insane and wild investor will take a $20,000 cash advance on his credit card to buy the property of his choice.
To use this $20,000 he'll probably end up paying $22,000 back.
Again, not that bad if you know what you're doing.
But before you do this type of technique, you better know how to sell the property in a week or two, or the interest will take every dime of profit and then some!
By the way, selling a property in a couple of weeks is not that big of a deal; you'll learn more about it in future chapters.
There are actually books you can buy with thousands of credit card companies phone numbers and addresses. A friend of mine once applied to 160 credit cards in 48 hours!
A lot of people think I'm crazy to use that type of financing, but it's not much riskier than getting a sub-par mortgage at outrageous terms. Take a look at a real life example of one of the properties I used bank financing for:
We bought the house for $25,000 with an estimated value of $60,000 fix-up.
We got a $20,000 mortgage on the property (take a look at the fees we had to pay:)
1. Loan origination fee: $2500
2. Appraisal: $300
3. Title and closing fees: $1700
4. Underwriting fee: $650
5. Survey: $175
6. Prepayment penalty: $1500
(This means if I sell or pay off the house anytime within 3 years I will have to pay the penalty. Think about it—with all the equity on the table, you'd better believe I'm going to sell within three years so I can get paid!)
Total: $6,825 (in b.s. fees!!!)
Although I made money, I still lost at least $4000 by not buying the property with all cash or credit card cash.
continued...