Advantages
There are many areas one can invest in. Since I was 15 yr old I have looked for the fastest, most effective way to accumulate a lot of huge selection, with the least amount of risk. I am now 58. Even while looking for this road to truth, I spent time and effort in the school of hard knocks. The school of very hard knocks is a very interesting but painful school to attend. It is also the most expensive way to learn something, but if you graduate you have a PHD in what to do and not do together with time and money. The schools I attended happen to be: Investing in businesses as a silent partner, owning my own enterprises, working for another family member-in my case my father, selecting publicly traded stocks and securities, penny mining stock option, commodity trading, investing in gold and silver, real estate private lending, housing development, real estate remodeling, buying foreclosure properties. I equally worked as a real estate problem solver/matchmaker, bringing business owners as well as business buyers, and matching up real estate owners utilizing real estate buyers.
Writing about all of these activities would take the encyclopedia, so we will limit this essay towards the kinds of situations you can run across in the real estate school for hard knocks. I will present my solution with the assigned situation. There are more than one possible solution and I receive you to come up with other possible solutions as you read. Any time you get some value from my experiences that will hopefully decrease tuition to the real estate school of hard knocks. Experience free to e-mail me your comments, alternate solution or perhaps stories. Do, please, let me know that it is all right in my circumstances to publish them.
My Real Estate Philosophy
As a way of presenting myself, I thought you might find what lessons I have discovered, after all these years of real estate, interesting. Buy real estate property instead of stocks, bonds, mutual funds, or commodities. If you pick a winner in one of these non-real estate areas you can take 5-10 times your money. When you are wrong, in one of these non-real estate areas, you can actually loose up to 90% of your bucks. In real estate, if you are not greedy-not trying to get rich quick-in one year, you can make 100 times your money, on the upside. The particular downside risk is only based on how well you looked at the possibilities ahead of time. If you did, the downside risk is without a doubt reduced to only the holding time to fix an error. If you rush in and do not explore all the possibilities of a small business venture, you can actually loose 100% of your money. In my thought process an upside of 100 times profit is better than 10 times profit.
My philosophy on real estate ownership seems to have changed in the last 15 years. I used to think that reselling at the top of the market was the smart move and buying from the crash. Now I feel that buying when prices are actually down is still a smart move but never selling will be way to go. In order to hold on to a property in a down market you require the most proper planning to survive the crash. This I call up a back door or emergency plan. This is have a very good plan and knowing what you will do if everything travels wrong with you original plan. When you have a backup prepare, you rarely need it. This is the basis of my vision. With this understanding, you might more clearly see why I did exactly what I did in these situations.
The Stories and content:
The area of real estate investing is one of the most complex mainly because it is a combination of law and real estate. It is one of the most helpful because fortunes are made and lost in this area, and the statistics are so enormous. Lastly it is an area where criminals can make a lot of money and many times get away with it. Following will be some stories (case histories) I have dealt with and some posts I have written on the subject of fraud in real estate. Finally, I had included an article on the basics of foreclosures and properties in general, for your interest. I hope you enjoy them.
The Memories:
Story #1:
It was early March 2000 and That i received a call from Kevin. He said that he had heard about me from some mutual friends. The guy wanted to speculate in buying HUD houses (Properties the fact that the Government had foreclosed on). He wanted to buy them, take care of them up and then sell them at a profit. He previously heard that I had bought many foreclosures in the 70's and 80's and he was hoping I could encourage him. We met for lunch and he told me his life story. The important part of this conversation will be that he had bought a boarded up 14 appliance apartment building in downtown San Bernardino, across the street, collected from one of of the roughest high schools in California.
By the last part of the meeting, I had figured out that he had overpaid with regards to $75, 000 for the building, he had already wasted $200, 000 trying to remodel it, and it was still $100, 000 away from being finished. He had bought it 1 . 5 years ago and a large part of his costs was the eye on all his loans, related to this project. She was now broke, and in deep trouble, but also in his mind, the badly needed money was upcoming.
It is interesting to note where he got the money to get this project. 4 years earlier he was given cash to buy an apartment building by his father. He was given enough money that he only needed a very small $150, 000 real estate loan to purchase a building in Pasadena that cost him a total of $525, 000. To buy the San Bernardino rehab project, he first refinanced the first trust deed on the Pasadena building and ran the loan balance to $385, 000. When which will money was gone he borrowed $74, 000 in the form of second Trust Deed on both the Pasadena and San Bernardino properties. By the way, that loan cost him 15% interest and $15, 000 in up front fees to see the money. Before we parted, I told him that they made a very expense mistake in buying San Bernardino. I explained that from the day he bought a building it was a sure bet that the project may fail. I then had to tell him that I would not lend the pup any money on San Bernardino, to save his butt.
Covering the next 2 months I received periodic phone calls, sharing me the progress of the fund raising. One of those posts I was told that the existing 2nd Trust Action lender was saying that he might give Kevin all the added $100, 000 he needed to finish the venture. At the same time, Kevin also believed he had found a bank or investment company that might refinance all the loans of San Bernardino. The issue with the bank loan was that the appraisal fee was $3, 000, and it had to be paid in advance, even to just simply apply for the loan. Again Kevin asked me for money. Again I refused to put more good money along his black hole.
Then one morning I got a label from Kevin, "If I don't make the $2, 000 payment to the 2nd trust deed holder, he'll almost certainly start foreclosure in 2 days. Kevin also explained "The 2nd trust deed lender said that he would certainly buy the Pasadena apartment building for what I had settled it, 4 years ago, $525, 000. " The feature had a stipulation to it. Kevin had to bring the actual loan current first. In my mind, if Kevin could quite possibly bring the loan current, why would he sometimes bother to sell the property for a wholesale price? I wasn't able to believe what I was hearing.
After hearing involves I decide that it is time I stop saying hardly any and help. What Kevin thought he wanted was initially a real estate loan for a lot of money. The truth is, that finances was not the solution to his problem. The problem had to be distinct from what Kevin believed, which is why the problem persisted. The real issue was not more borrowing. More borrowing meant more money downward the drain.
Experience has taught me, "If this challenge was what Kevin thought it was, it wouldn't deemed a problem. " What does this phrase mean? The businessman has a financial set back. He thinks that through some short term funding he can recover from the set back not to mention return to the top. After looking around, our businessman will usually have the money, but strangely enough the problem doesn't resolve. When the problem did correct itself, then the businessman was ideal about what the problem was, and the problem would be gone. Normally the money doesn't help, but the businessman doesn't understand that. The person doesn't realize that the problem wasn't money in the first place. Should it were, the problem would now be gone. Lets us continue the explanation. The last money borrowed is now gone as well as problem persists, so our businessman goes out to find a higher cost to solve the problem that didn't solve with the money she borrowed, the first time. What happens the second time? The same thing. The money is required up and still the problem continues.
Our businessman is implementing the wrong problem. The problem is not money, or the problem would've been gone. Kevin thought the problem was money. The software wasn't. He had already poured $300, 000 into the San Bernardino building, on top of the $209, 000 1st Put your trust in Deed loan that came about when he bought any building. Before he was finished, he spent through $500, 000 in a building that needs $100, 000 to accomplish, but was only worth $475, 000, after it had been finished.
What could I do? Use what the good master gave me. 30 years of experience, on the subject of arising from problems that I created when I was young and eco-friendly. Here was the war strategy. I got Kevin for you to agree to turn over total management of the two properties with me. Knowing that I was managing the property and working on the things I believed was the correct problem, I felt snug about loaning money on this deal. If I can't put your trust in myself to solve this problem, whom can I trust? I begun by loaning Kevin $25, 000 to make needed vehicle repairs to the Pasadena building, pay the property taxes and to produce the first and second loans current on the Pasadena place only. Nothing was to be spent at this time, on the San Bernardino building.
Now that I controlled the Pasadena flat building, I discovered what repairs the building needed. Typically the list was so long it took one man with three months, full time, to fully handle it. I then did a very descriptive market study and determined what the market would spend in rents. I asked the tenants for a menu of everything they wanted done in their apartments to be content. I then did everything the tenants requested and I then raised their rents 30%. After the building was 100 %, I raised the rents another 15%. The value of your building went up and I received an deliver for $725, 000. This was $200, 000 more than the value 6 months earlier. I put it into escrow, then I realized that I could raise the rents some more. I just raised the rents again in escrow and pressured the buyer to pay another $25, 000 for the building. Sending the price to $750, 000. That $225, 000 turn a profit was needed to help cover the money being lost throughout San Bernardino.
Author's Note: The escrow fell by means of and the building was kept until this update, 12 , 5, 2004. The building is now in escrow pertaining to $1, 583, 000
What did I do about San Bernardino? I contacted the seller/lender and asked your pet if he would like me to pull the safety guard out of the building and let him have it instruction online foreclosure. He didn't want it back, even though he pretended that he was willing to do that. He offered me $25, 000 in incentives to get me to personally provide loans the money necessary for the completion of the building, so the person wouldn't have to take it back. For 3 months he attempted to get me to put money into the building, with the indisputable fact that once I put my money in I wouldn't disappear from it. The real story was that I wouldn't put the dime into that black hole until I discovered how to make it recover at least $100, 000 of Kevin's lost money. I asked for a $70, 000 lower price on the note, and offered to pay him off. We all negotiated for two months. Just when I was ready to surface finish the deal, the seller sold his note to someone else just for only a $30, 000 discount. I was not able to produce the money I wanted because now the new note holder sought 100% of interest and principal due. This used a monkey wrench into my negotiating. All this occasion, I had a buyer standing in the wings to buy the particular building from Kevin while I was negotiating. My spouse and i was then forced to sell the property to this buyer and also Kevin recovered only a little bit of his investment. The lender plus I were both playing a high stakes poker adventure. I lost this round. If I could have gotten typically the payoff reduced, Kevin would received a large hunk in money from an "as is" sale. This is what When i call playing "Craps" on a very big Monopoly panel.
Author's Note: The buyer, thinking he was going to put $125, 000 to finish the remodeling, notified me, after one year, that he had spent $300, 000 to finish the making. The apartment building values were increasing rapidly do your best period, so Kevin's project was increasing in importance at the same time the buyer was going deeper and deeper to construction costs. The buyer made out all right in the end. Should the market had died, he would have lost $200, 000 on this building after Kevin had already lost a lot. It's all about timing, isn't it?
Kevin learned that dollars alone was not the answer to his problems; he expected a Genie, to turn his turkey into a swan.
Tale #2
Janet is the daughter of one of my oldest and wealthiest friends and clients. We have been doing realty deals together since 1975. Janet and her groom started buying distressed real estate in Phoenix Arizona through 1994, which was 8 years ago when it was the thing to try. It was now Dec 2000. The market appears to be slowing down as well as did after September 11, 2001. Janet had been continuously borrowing money from her father, whenever things received too difficult. She later sold everything in The phoenix airport and bought property in Northern California. Then on 1999, one year before I was brought in, she began buying real estate in Kansas City. One day Janet's papa called me and asked for my help. He had credited his daughter $200, 000 and felt that every little thing she owned was upside down. (Loans more than the market worth. ). This was further complicated by the fact that if your lover sold her properties, to pay off her father, the capital advances taxes would eat up any cash, from the sale. As well as all this, Janet kept asking for more money to keep up the installments on the properties that had a negative cash flow and couldn't have enough rental income.
He hired me to help the daughter and agreed to pay my fee. I would manage this 40 years old kid, to get her to return the woman fathers $200, 000 and make herself totally arrears free. Janet and I met. She was remarkable. She did know what she was doing, as far as selecting good real estate deals. She owned, at the time of our appointment, 10 properties located in 2 different states, and it has $500, 000 in equity. If we could get it through, before her father had a stroke things could well be great. Janet agreed to the arrangement, happily, if I might be her adviser, not his. Her father agreed to fill whatever money was requested as long as I approved the software. Also I had to be the one to ask Janet's dad for the money, since the upset between the farther and daughter was basically getting unbearable.
This is what we did. A list of needed maintenance tasks was created for each of the 11 properties. Bids were been given and the work ordered to be done within 30 days. I thought this was not to take months. It had to be done immediately therefore we could go to step two. Step 2 was to put on the market many of the expensive Northern California property. To my disbelief, Janet wanted to move her family, to a new city, in the center of all this and her father agreed to let her complete the work. She had found an old run down house that the woman felt was undervalued. That meant that her good old residence was put into the group of properties to sell. Market is what we planned to do. Everything was to be placed on the market, and sold at the best price to be been given, but sold regardless. The property in Kansas was that should be repaired and fully rented. The properties that could be offered for sale at what we thought was full retail, were even put on the market. The plan was that when everything was advertised, the father would get paid off; the loans on the staying properties would be paid off and the balance of the cash will be put into the bank. Since all of the Kansas deals appear to be a good quality investment, Janet could now continue to buy more Kansas property, (she had only been spending $25, 000 on each deal) but for all cash. The rental prices coming in would generate enough income for her family to live a life on without having to ask for money from dad or touching her investment nest egg. That was the plan.
I forgot one last thing. Because many of the properties had been bought yrs ago on a 1031 exchanges (tax-free exchange), the capital gain tax burden was going to eat up the cash proceeds. That was one of the traps Jesse fell into. She felt she couldn't sell with out buying a replacement. Of course by not liquidating before starting anew, she would never get out of debt with her real estate providers or her father. The solution, for this problem was much easier than one would think.
First, the father did a 1031 exchange with Janet for one of the big profit properties. The father sold Janet his personal residences for basically no money down. Now Janet rented her father the place he lives in. So much for capital gains place a burden on on the $150, 000 profit in that one big selling. The second big profit was in the house Janet currently were living in. That was tax-free under the current laws. Since the other sorts of houses sold had smaller profits, it was decided the business decision to get out of debt was more crucial than avoiding paying any taxes.
Author's Note: Which was the plan. So what happened? Janet decided she didn't would like to sell the junk in Kansas and fired others. She refused to pay her father back and as regarding December 2004 he had not seen a dime. Dad has deducted what she owes him from him / her inheritance, which will be put into a trust administered by the brother for the benefit of the grandchildren. Real estate in Los angeles skyrocketed after 9/11/01 terrorist attack and her real estate all doubled in value.
Summary: Everyone thinks the fact that his or her problem is not confrontable and therefore unsolvable. I have found who someone other than myself can solve my un-confrontable challenges in 10 min and I can do the same for the kids. It is not a question of being smarter, or more experienced, nonetheless experience helps a lot when coming up with easy solutions, promptly. It is really that we all are willing to confront someone else's problems quite easy than our own. When we are willing to confront our own problem head-on, solutions begin to appear miraculously. What I do is guidance people take their mountains and turn them within molehills. The molehills are then flattened with ease.
Instructions to learn: First, do not think you are smarter than the individuals passed this way before you; you're not. Second, markets never go up forever, have not performed as if they will. Third, if you are not even prepared for the worst, it will kill you. If you are completely ready, it will only hurt a little. You will survive and can be purchased away much richer in the end.
