The 30,000 Foot View of Money
So often I discover when I talk to parties that are firstly getting started, or those that are really trying to get into the business, they always share with me that their biggest problem, the most difficult problem they have is money.
They tell me that if they have the money they could do a lot of spates, and that they’d make all this coin. I would argue that if you took a poll of 100 people right now off the street, kind of like a Family Feud,” Survey says ,” most of them would tell you that if they had, say, $500,000 in their bank account they could be successful at real estate expending because that’s the biggest problem, coin. They is commonly point to,” Hey, there’s three lives down the road that are great deals right in my own vicinity. I only don’t have the money, but if I did I’d rend them up, and I’d resell them. I’d make all this coin .”
The Real Problem
As you can tell from my tone of voice, I am not remain convinced that coin is the biggest problem in real estate investing. In fact, I would quarrel the biggest problem is great deals. Great spates are what’s missing. I have a lot of friends and associates that are giving coin for real estate investors, and they always tell me their biggest problem got nothing to do with the limited availability of coin. It’s the lack of great deal that students or investors bring to the table. That they’re structured properly. That they’ve been done in such a way where they increase health risks, but maximize rewards. Great spates is what’s missing.
Now, great deal presumes something really important, that someone is well aware a great deal is. Feeling the great deals, organizing them, negotiating them, putting them together with the privilege paperwork, yes, that is incredibly important. It also means you have to know what they look like. One of the biggest problem with coin, when you have access to a lot of it for real estate, is it can enable you. Money can be an enabler. It can enable you to form bad decisions that can be very costly.
For many of you watching this video right now, what you’re about to discover is where to start with the process used to coin for real estate. It starts with a great education, and the ability to find great deal and formation them. Because after he had great deal then the money alternatives open up, and that’s the key to this.
Money is really not a problem after he had great deal. Money is only a problem when you have marginal spates. There are a lot of marginal spates out there. You can find tons of bad deals. They’re everywhere. The defy is conclusion good deals and get training. What I’m going to do now is I’m going to break down these different options because this goes into a whole new subject matter that I’m really passionate about. Let’s talk about bank money.
Bank money, really, really interesting. Banks loan up to 10 durations as much coin as they have in their vaults. Here’s what I entail. Let’s say they’re going to give $100,000 for someone to buy a room. Technically that bank only has about $10,000 in their bank account to give this amount of money. How does that work? Well, welcome to our financial plan. Banks give 10 durations as much as they have in lodges, so that would be like you if you have $10,000 in your bank account right now giving your neighbor $100,000, and get interest on $100,000 when all you really have is $10,000. That’s our banking institutions in literally three sentences.
Here’s the elegance of bank coin. Watch this. If the cope becomes bad, and the bank only get, say, $50,000 after, says, a foreclosure or something, did they lose any coin? They forgot perhaps the interest fees, but did they lose any of their principal? Uh-uh( negative ). No. In fact, they’re still onward $40,000. They’re okay. They’re fine. They give this $40,000 back to the Federal Reserve. The Federal Reserve is neither federal nor a modesty. Different topic. I The elegance of bank coin is that if happens go wrong no one’s really hurt. Now, yes, your credit may be hurt , no coin is actually misplaced, and that’s one of the great things about bank money.
The Issue With Bank Money
Now, as you probably know the problems with bank money are pretty simple. Everybody knows those. You have to have credit, and you have to have a down payment in most cases, and all sorts of other things. Bank money has it challenges, but what I like about it is that if fund is lost no one’s really hurt. Now, why is that so important? Because with real estate investors there is a propensity to want to go find private money.
Private money is where you have a friend, family member, you have an acquaintance, somebody is going to take fund out of their 401 K or just out of their savings, and they’re going to lend that fund to you. That’s what private fund is. My concern and my problem with a lot of people who try to raise private fund is I don’t believe that they should be doing it because they’re not successful enough to be playing with somebody else’s fund. Because when you raise private fund, and if you lose that fund all of it’s lost. It’s not like a bank where there’s leverage there. This is other people’s livelihood.
Bad Deal Example
The number of deals that I’ve seen go south where private fund people have lost fund it’s brutal. There’s a deal today that’s going to tax auction here in my area. The person had gotten an $80,000 private fund loan from a local guy who owned a plumbing company here, and it’s going to tax auction for $6,000. Now, it may end up bidding up about $10,000. I know those numbers are small, but this house is in the ghetto. The private money lender’s basically going to lose all $80,000. That’s brutal. I am not a huge fan of private fund for people that aren’t already really good at the business and know what they’re doing.
Upsides to Private Money
Once you are good, and you do know the business well private fund can be nice.
It can be used for down payment. If you’re trying to get a bank loan for the majority of it, maybe you need help with a down payment. Perhaps you can help with rehab costs. Perhaps the bank will give you the loan, but you need the rehab fund. Perhaps you need help with the entire balance. I’ll put entire balance here. Where it’s secured money against that real estate, and that can be good.
Private money, if they are unable deserve 6 to 10% on their coin that’s a lot better than, say, a lot of other asset alternatives they may have. It’s not that private coin can’t be a win-win for, say, your uncle’s 401 K.
The difference is you have to be wise about it. I am really concerned when I assure newer investors trying to raise private coin because they don’t know what’s going on hitherto. Often period it’s those slews that go south because like I said earlier in the video, coin can be an enabler. It can help mortal get into a real estate cope that’s a lousy deal they should have never gotten into. That’s what I like about bank coin is that even if events go wrong no one’s really hurt, whereas with private coin parties are hurt when events go south. There are other options, by the course, so let’s talk about those real quick.
Now, if you’re just getting started, and you can’t get a bank loan, and you don’t want to play with your uncle’s 401 K and his subsistence for the future, what do you do? Well, I miss talking here two very well prepared options.
Option 1 Hard Money 😛 TAGEND
It’s kind of like private coin, but it’s people who give coin to real estate investors. They’ve been doing it a long time in many cases. I enjoy these parties. These people know so much better about real estate investing as anybody you’ll ever converged in many cases. Now, they are not able to wishes to educate you anything, but they know what’s going on. It’s because they’ve been burned a lot. They’ve lent coin to other investors and they’ve learned video games. Hard money lenders usually give somewhere in the range of about 65%. Sometimes up to 70%, but usually 65% of value.
Now, right there that are currently creates a huge, huge impediment for numerous parties. Observing a cope at 65 pennies on the dollar. That’s a good deal, isn’t it? What do those numbers look like? Well, for a $200,000 mansion that would be, what, $130,000. As you go up it even goes more and more difficult because now you’re starting to really get a steal of a cope. At $100,000 that’s a little more reasonable to get onto at 65%, although it’s still challenging.
Hard money is a great option because they’ll give you based on the cope. They are real estate investors, so they know what they’re going themselves into. It’s not a private money lender like your cousin, who you’re using their coin and they have no hypothesis. Hard money lenders know what they’re doing, and they’re likewise very helpful sometimes as you’re going through a deal.
They may be able to help out with the reputation of a contractor or those sorts of things because they certainly know the game. In detail, there’s a neighborhood hard money lender in Orlando that he’s been in the game forever. He just really knows his trash. I really like this option for new investors because if you can do some of these slews, find good deal that fit for a hard money lender, use their coin, do the whole deal, that can be awesome. That gives people a great education, and “you’re supposed to” aren’t going to get hurt because the hard money lender would have never maybe lent you the money if the cope was a bad deal. There’s already that natural the examinations and equilibriums. Does that make sense?
I’m not always a fan of buying it with real money , tying it up, and reselling it. What’s another option? Transactional funding. This is a relatively new one. This has only been around for about five years, maybe a little bit little. This almost brand new various kinds of trash. Transactional funding.
What’s that? These are people that give fund because you already “have another” buyer lined up to close. Now, you still have to buy it, so maybe you buy it at $100,000. That’s your acquisition price , but then you’re selling to the new person or daughter for, say, $120,000. That’s the sale price , so you may have to own this for, I don’t know, a week, three days, sometimes even exactly an afternoon. You buy it at $100,000 and resell it to them for $120,000. The transactional funder is safeguarded because they already know this thing is locked and loaded.
Typically you need nonrefundable earnest money. All the stints have to be through on their area. Often easier if the new buyer’s remunerate in all currency versus a loan. This is great very, and I certainly, really like it when new tribes are utilizing this procedure. They get the slew under contract then they become locate a purchaser, and then “they’re using” transactional fund. Because this trash generally overheads anywhere from like 2 to 3 %. On this slew it would probably be like $2,000 to $3,000. Depending on the area and some other things.
This right here is an awesome option for new tribes because it allows you to get into the business without having a ton of jeopardy involved because you’ve already got the new buyer in place, and you’ve already learned all the skills about locating the slew, and then going rid of the slew. Guess what? In the real world this part’s huge. If you close on a deal with hard fund, and you can’t find a purchaser six months down the road that’s a real trouble. The nice stuff about transactional fund, you’ve already got the buyer. These are enormous options for people that are firstly getting started, but there’s more.
There’s also this thing called imaginative commerce. Creative financing is what I do a lot. Creative commerce is applying the existing trash on the belonging to organization the funding. I use this a lot when I’m taking on deals for long term rentals.
The firstly is proprietor financing, which I exactly introduced a slew like this under contract on Thursday. Owner financing is great. You get the owner to be the bank, so you pay them each month. You can give them an interest rate. A low-grade interest rate, high, up to you. That’s all structured in the negotiation. The seller grows the bank.
In the instance in the belonging I put under contract on Thursday, here’s what happened. The party owned the residence outright. No loan against the belonging, so we worked out $93,000 was how much was get be the owner financed loan. I did it at 6 %, but that’s because it’ll rent real nice. The total remittances like $750. It’s going to rent for maybe $1,200, maybe $1,300 depending. A fortune of enormous trash on that slew. The value’s awesome. The stuff is I didn’t have to go to get a bank loan for it. I was able to use the owner as the bank, but they’ve lived there. They know the residence, so they are aware of a lot of the risks involved in it. It’s a slam dunk.
Another thing you can do is called a subject to, and that’s where you merger an existing loan. You merger a bank loan that somebody else got on their residence. I get vendors asking me quite a bit,” Why would you take over my loan when you have been able just go get a new one ?” I tell them. I say,” Look, it’s because your loan got a lot lower interest rate than mine “would’ve been” .” If you go to a bank as overseas investors they jack up the interest rate, but it’s a lot lower of an interest rate if you buy the residence living a life in because banks have done their numbers. Those that live in the home, they have a lower default charge than investors do.
With a Subject to :
- you’re not actually going to a bank .
- You’re not going to a hard money lender .
- You’re not going to a transactional funder .
- You’re not going private fund .
- You’re not doing owner financing .
- You’re literally taking over the existing mortgage .
Plenty of Options
I hope what this video has shared with you is that there are plenty of options, but in most cases the key done a great deal structured correctly, and then your fund alternatives, or your fund alternatives open up. I’m just not a big follower of somebody going out there and trying to do bargains when they don’t know what they’re doing. Specially if you’re going to lose somebody else’s fund. It’s one thing to lose your own money in a bad investment decision. It’s another thing to lose Grandpa’s money.
This goes beyond real estate too. You’ve watched these television sees like Shark Tank where people will spend their life savings. I viewed one the other day. He spent like $300,000 to start this business, and then when they get in front of this panel of these sharks they all look at the business, and they say,” I don’t think it’s a win .” That’s a problem.
Know What A Great Deal Looks Like
You see, that goes back to the great deal circumstance I was just talking about in the very beginning. If you have a great deal then there’s a lot of funding that get thrown at it. It’s so much better to know what a great deal looks like. In this case I applied the illustration of Shark Tank. Know what a great business looks like that’s going to make good fund, and have good prospects, and good capability. Better to know that first before “you’re starting” dropping your entire life savings into. Does that make sense?
Get Some Education
Know what you’re getting yourself into. Develop yourself. Now, if you have to spend some fund for education I believe that’s fund well spent because that fund will be a lot lower than the expenditures you’ll hear on a bad deal.
- One real estate mistakes can cost you a ton of money
- Some education, is it going to cost you some fund? Sure, but it’s the right kind of expenditure because now you’re getting yourself into a position where you can be wise with government decisions you acquire, and that is actually begins with government decisions about fund .
If you want find money for real estate find some great deals. How do you do that? Get educated . How to find them, how to gather information them, how to get the right paperwork in place. Get that education in you.
You can start off simple. You can start off merely putting a property under contract and flippingthem, and never use any fund like this. You don’t even have to. A lot of the people that we mentor start off small. It’s baby steps. We start them with some smaller bargains. Represent $6,000. Make $ 10,000. Make $20,000. Not a lot of fund before they dive into the bigger stuff, and then eventually you may become this boulder adept that invokes tons of private money.
Mobile Home Parks
We have one of our students who now does these huge mobile home parks. Three million plus, and he invokes billions of dollars to buy these circumstances because mobile home parks, a lot of banks won’t lend on the mobile homes. They’ll simply lend on the actual estate, and they are generally simply give about 60 to 70% on the estate, so a big chunk of a$ 3 million mobile home ballpark purchase is actually private money.
This guy merely flat out knows his stuff. He’s been through our platform. He’s made a lot of fund with us. He went on to make a lot of fund after working with us. Certainly knows his stuff. Super dependable. You actually can trust this person, so him heightening fund is not nearly as difficult. He has a great deal. He can present what the numbers are. He can show his track record. I also feel confident this person, where reference is invokes that kind of fund, is not going to hurt a knot of other people.
I possibly took that in future directions you may not of expected, but as you can tell I’m passionate about it. I think you should be very cautious about use tons of fund in real estate before you know what you’re doing Well, I’m Phil Pustejovsky with Freedom Mentor. I actually recognize you being on this video. Check out our other stuff as well. This is just the tip of the iceberg on which is something we share on these videos. I also have a great volumes out called How to Be Real Estate Investor . and Real Estate Investing Gone Bad I think you could gain a lot from that if you haven’t already read it. Other than that, happy investing, and thank you for having watching.