Quote from @Jeremy Horton:
Quote from @Don Konipol:
Quote from @Jeremy Horton:
Well quick update - still have 3 houses under contract (2 SFH & a duplex). One with existing tenants (SFH) and two with an investor (SFH & Duplex). I'm expecting the investor to ask for some deductions/repairs etc this coming week. So we'll see about that. Should close on the other house the first week of June.
This past week I went under contract on a self storage facility about 10 mins from my house - this is what I've been trying to lock up for the past couple of years, but finding something in my price range, size, location, condition etc was difficult. I had actually opted to just develop, so I bought some land...then this one came up. Good room to expand, no website, ran off excel, no google page, no advertising, signage etc. Exactly what I was looking for. So that will be my next project.
I may or may not keep the fourplex. I need to run the returns on it again and see what makes sense. Or hold it until I find a nice STR, then sell and buy the STR. That would be my preferred route. I may just go ahead and do that now that I'm thinking about it again.
When I get some time I'll add in analysis on the properties I sold to give a decent idea of the entire investment journey.
Now why did I post all of this? I wanted to give a realistic look at investing from someone who started from scratch reading BP, watching YouTube videos etc. I make a decent living otherwise, so this was essentially looking for investments other than the stock market.
You’re definitely thinking like a successful real estate investor. I think you’ll find that if you begin to utilize some “wealth enhancement” strategies you’ll have results that few if any other investments can match for risk adjusted return.
What "wealth enhancement" strategies are we talking about here?!
I am getting to the point where I'm going to have to get some guidance one way or another. I can figure out a good bit myself, but when it comes to structuring LLCs/businesses/trusts then the tax implications of everything - I just don't know enough to figure out the best way to do it
Here is a brief summary of some of the wealth “building/enhancement” strategies and techniques I’ve personally utilized during my 50 years investing in real estate
1. Purchase 20% + below market value for cash when property can’t be financed
Buy truly below market by offering a very fast close, all cash, without the need for financing. To implement this strategy you need to have the full purchase price in readily accessible funds, so it won’t work for the majority of investors. Further, only a minority of sellers will be interested or motivated to offer a significant discount for an immediate no contingency sale.
2. Buy with seller financing with sweetheart terms ( assumable, 0% interest rate Seller Financed Note) and sell wrap note higher interest and or higher price for providing financing to buyers who would not qualify for conventional loans
Sell a property with an existing low interest mortgage utilizing a mortgage wrap. You’ll receive a higher price for the property because by offering seller financing you open up the bidding to a greater number of buyers. You create a note with an ultra high yield because you capture the interest rate differential between the stated interest rate on the wrap note and the lower interest rate on the underlying note.
Example: I sold a retail/service center for $1,750,000 with a $1,300,000 note I carried back at 10% interest. This note was wrapped around an existing $610,000 note at 4% interest. So I earned the differential of 6% on the principal balance of the wrapped note or about $36,000 per year for as long as the note is in existence, plus of course 10% in the “unwrapped portion” or $69,000 per year.
3. Substitute a note purchased at large discount for seller financed note at full value (substitution of collateral)
Buy a property with seller financing at a low interest rate and long term and a substitution of collateral clause. Buy a note with a interest rate similar to the seller financed note at a large discount due to the relatively low interest rate and long term - and “substitute” this note for the seller financed note. You’ve just decreased your purchase price by the difference between the principal of the seller financed note and the “discounted” price you paid for the substitute note.
Further, you now own a “free and clear” property you can borrow against should you desire and probably get all your invested cash out.
Example: Back years ago when I was still dealing in residential properties (as well as commercial) I purchased a SFR for $55,000 with $5,000 down and the seller carrying back a 25 year note at 7% interest. I explained to the seller that my offer contained a substitution of collateral clauses and I would be exchanging the note they held on the subject home with a note of similar principal and interest secured bya different property of greater appraised value. The sellers were agreeable.
Interest rates inthe then current economic climate were in the 15 - 17% range for new mortgages, hence Iwas able to purchase a note on a SFR with a principal balance of $50,000 or so and an interest rate of 7.5% for $22,000. I "substituted" the note I purchased for the $50,000 seller nanced note and hence ending up paying $27,000 for the $55,000 house.
4. Use ability to finance at low interest rate to gain equity position
Negotiate for ownership interest in a property, with good cash flow from operations, but suffering negative cash flow from a high interest hard money loan that the owner can't refinance due to his personal credit limitations. Refinance using your good credit at 50% LTV and no personal guarantee. Negotiate the lender allowing a one time note assumption.
5. Work note
Purchase a low interest rate note at a significant discount to principal. “Work” the note by offering a smaller discount for payoff to the debtor, or by enticing an increase in monthly payments for a decrease in interest rate, which should if structured correctly increase you yield.
6. Business/Real estate combination
Purchase a business property such as an automotive repair shop. Purchase all heavy equipment needed for an automotive service business such as lifts, cranes, etc. Find an experienced operator wanting to operate in your location and sell him the business and lease the real estate to him. You can charge a hefty premium because with the shop fully equipped the operator saves the cost of outfitting the shop and the time and effort required. You can obtain a 12 cap or better. on this type of situation.
Example - I purchased an automotive shop with all the equipment intact at a bankruptcy auction for $117,000. sold the “business” (equipment, name, signs, goodwill, etc) to an operator for $50,000 cash, and the operator five year 3N lease at $3,000 per month. After enjoying a net income of $36,000 per year on a net $67,000 investment, I sold the real estate to the operator for $335,000
7. Purchase property or note wholesale; Sell 1/2 interest to a partner at a profit to yourself.
Example - negotiated purchase of a 5 year balloon note of $280,000 remaining principal paying 11% interest for $250,000. Sold 1/2 interest to a partner for $140,000. So, I ended up paying $110,000 for a $140,000 equity in the note. Further, I receive 1% of the loan amount annually for servicing the note.
8. Syndicate deal
Syndicate property or note acquisition and retain equity interest as “promote”.
CREATIVE REAL ESTATE WEALTH ENHANCEMENT STRATEGIES BOOKS
Swapping Real Estate for Fun and Profit, Paul B Kelley
Invest in Debt, Jimmy Napier
A Fortune at Your Feet: How You Can Get Rich, Stay Rich, and Enjoy Being Rich With Creative Real Estate, A D Kessler
Creative Seller Financing, Creative Down Payments, Advanced Creative Real Estate Financing, Chuck Sutherland
How to Finance Any Real Estate, Any Place, Any Time: Strategies That Work, James A Misko
100 Equity Marketing Formulas, Virgil Opfer, Dan Harrison
101 Recipes for Riches in Real Estate, Wayne Palm
