A little discouraged

20 Replies

Hello everyone,

This is my first post so I guess introductions are in order. I am a 31 year old from knoxville that has recently caught the REI bug.

I would like to be successful in Real estate so that I can eventually leave my job. Not because I do not like working but my current occupation is very physically demanding and keeps me away from home for weeks at a time.

I am complete newbie to all of this. This is why i have been scouring the forums and reading as much as possible to try and get ahead. The only problem is that it feels like information overload. Meeting people locally is also difficult being gone so much of the time. One thing I am sure of is that I would like to invest in SFH and MF. I am looking for cash flow. I would like to be able to replace my salary with income from properties so I can spend more time at home and actually network and pursue something I enjoy

I started looking at properties in Knoxville and wasnt having much luck. Im originally from Orlando and have an Aunt threre who is a successful real estate agent. I called her and she told me she would work with me to find properties there. Basically she gave me access to the MLS and told me to let her know if I found anything.LOL. Well I actually did find something. A foreclosure in a great neighboorhood that was within my budget. It is a 3/1 that could potentially rent for 1300 a month. The asking price was 106,900. Based on my numbers the property would have cash flowed at over $500 a month with 30k down.

When I went to make an offer the agent told my aunt that they had a bunch of offers. Then she tells me that there is a good chance that many of them were cash offers and cash will beat financing any day. So how am I ever going to get I good deal without having all cash down??? I can come up with cash pretty quickly but I was hoping to stick to only using 20% down on properties to get the best return on my money..

I guess I am looking for any suggestions from experienced members that could help me out.

Also what are some of the better books that would help me get ahead?

Updated over 3 years ago

Wow, thank you everyone for the encouraging words and advice. Since this I posted this about 4 months ago, I was able to save up enough to make 2 cash purchases. I'm about to close on the 2nd, so things are definitely moving in the right direction.

@Christopher Smith 

If you can come up with the cash, do it!  Make the cash offers.  Then, either use the 'delayed financing exemption" (must complete the refi within 6 months of purchase), or hold 6-12 months and then do a cash-out refi.  Repeat.

Also, no doubt: cash offers do have an advantage.  That said, if you are willing to offer a high enough number, you may still beat them with a financed offer.  All depends on what it's worth to you.

Based on those numbers, your monthly rent to purchase price ratio is 1.21%. I can guarantee you that your cash flow is not $500 monthly when the total rent is only $1300. Read up on operating costs, the 50% guideline, and creative buying strategies. Most good deals are not found on the MLS (there are some but it takes persistence, lots of offers, perfect timing, relationships, and a bit of being in the right place at the right time), they are created through direct marketing, referrals, driving for dollars, probates, trust sales, BK's, divorce situations, etc.

Also, placing more money down does NOT create more cash flow as you must account for a return on your money. Leverage increases ROI, and you need a return on your money. So a break even property with 100% financing vs. the same property with 50% down and $500 cash flow does not mean the property has $500 in cash flow. Perhaps I am not wording this properly if that does not make sense, hopefully it does. An investment must stand on its own merit so to compare apples to apples, remove all financing in your calculations and compare each deal as if you were paying 100% cash.

Now, to your next question, how do you compete with all cash? You come up with all cash (can be borrowed funds from a private lender, JV partner, family member, etc., find a deal not on the MLS so you are not competing with anyone, or create relationships to get in on deals on the MLS that provide you first opportunity. Otherwise, you will always be competing with all cash offers.

First of all, don't get frustrated after making only one offer that got turned down.  If you are doing it right, this will be the first turn down of many.

Will Barnard is spot on. Christopher, I'm in Knoxville as well. It took me 2 years to get my first deal. Within 18 months from my first deal I had 224 units.  You need to stay persistent. I was hit with a tremendous amount of rejection but I didn't give up and that was the smartest thing that I did. 

Don't give up. It sounds simple but you need to get your reps. Best of luck!

We're in the same boat. I'm trying to get started as well and I don't have a ton of cash to compete with cash buyers and am trying to get my first property with financing as well. I just put in my first offer on a multifamily unit on the first day of the listing at the listing price and got turned down for a cash offer (the price was $400k by the way). There are plenty of people with loads of cash out there that we are competing with.

Our options are:

A) Keep making offers and hope we get a yes at some point

B) Offer more than the cash buyers to make our offer more appealing (I don't like this option)

C) Use other people's money (OPM) to buy with a cash. There's more than one way to do this. The hard part is finding someone with cash who you have built trust with. Hard to do if you don't have a track record.

D) Start mailing yellow letters to owners of properties that fit our criteria and see if you can arrange a deal off the MLS. Everyone has access to the MLS so there's bound to be a ton of competition.

These are just the things off the top of my head, and it might take a combination of these things to land your first deal. I'll let you know if I figure it out, haha.

@Christopher Smith 

Try asking the agent what he needs to close on in the next 30 days. See what he offers.

Paul

Hi Christopher,

Unfortunately you being out of the area for long periods of time adds complexity to the process and the odds of being successful are reduced. Not impossible but reduced.

I am on the commercial side. I haven't seen capital and buying flow like this for about 7 years. Everyone likes America now because their countries economically are unstable as to where the future is heading. So tons of investors long term want to place money here where they feel it is safer and more stable.

I will be working non stop in 2015. It's a perfect storm of interest rates for loans and the cap rates.

You need to be in with the listing brokers so you get advance notice before it hits the MLS. If that is tough the goal will be to get direct with sellers so that you are not competing with other buyers for the negotiation and purchase of the property. That takes time to find those properties and you have to spend money on the web and mailing campaigns. No matter which way you slice it a good amount of work will be involved to get the deal. Even after closing you still will have more things to do.

Just be prepared mentally for what this will take to be successful.

If you're offering on MLS properties, and getting shut out for whatever reason, let the listing agent/owner know that you'd like to be a back up offer. You never know when a sure thing falls through, and if you keep in touch, you may get the first call back.

Keep after it.  I only expect 1 out of 10 of my offers to actually be accepted by the seller.  When I put an offer in I structure it so that its a good deal to me & hopefully the seller as well.  Particularly when I ask for seller financing, I may lose out to a lower priced offer just because the seller is unsure of, or unfamiliar with that sort of deal.

Getting offers rejected is just part of the game. The first few properties that I purchased off the MLS I had the offers accepted with little or no back and forth, recently I have had a bunch turned down, not a big deal, it happens.

Best of luck.

Keep your head up and keep plugging away. Eventually something will work out. And as long as you learn something from each dead end, it is not a failure.

As others have said keep going at it and making offers that make sense for you.  I don't buy much, but when I do, I make 20+ offers before 1 is accepted. 

We were turned down on our first 20+ offers.  It got to the point where I had pretty much memorized the offer paperwork (form 17, etc).  It got so bad we even lost a house twice!  The first time, to a higher offer.  Then, a year later when it came on the market, someone beat us out with an all cash offer! 

I know everyone has mostly the same advice.  But keep going after it.  There's nothing like persistence.  Even though we failed to get our first property, we used it as motivation to get aggressive and buy another, then another, and so on.  Since losing that first house we have acquired 4 rentals and working on our 5th.  It has taken a few years, but this is a long term game.  The hardest part is getting the first one.  Don't give up!

Originally posted by @Will Barnard :

Most good deals are not found on the MLS (there are some but it takes persistence, lots of offers, perfect timing, relationships, and a bit of being in the right place at the right time), they are created through direct marketing, referrals, driving for dollars, probates, trust sales, BK's, divorce situations, etc.

Now, to your next question, how do you compete with all cash? You come up with all cash (can be borrowed funds from a private lender, JV partner, family member, etc., find a deal not on the MLS so you are not competing with anyone, or create relationships to get in on deals on the MLS that provide you first opportunity. Otherwise, you will always be competing with all cash offers.

Thanks for that Will.its an unconventional approach to locating those great deals

Couple of things.

1) To overcome the all cash offers, try looking at hud deals (hudhomestore.com). They don't care whether the offer is cash or financing. All they care about is whose numbers is biggest.....

2) The concern I'd have about orlando would be that you'd end up having to pay a PM and thats going to cut into your cash flow - unless your aunt is going to do it for free.

But bottomline is that it is very difficult to manage everything long distance. Lining up contractors, getting estimates, village inspections, etc, etc.  You either need the deals to be local or you need a PM.

3) Are you sure there are no deals there by you? Typically, the competition is pretty stiff when you're in a highly populated area/big city. I'm not suggesting Knoxville is Chicago but its still a pretty good size area from what i can tell and a big college town to boot.

I would suggest you try looking further out from Knoxville to smaller towns or groups of smaller towns. Big enough that they have some inventory and rental demand, but small enough where some of these big time investor operators aren't entrenched in there.

Investing is much easier when you're competing with a handful of other investors like yourself as opposed to the deep pocket investors in the larger cities/suburbs that have seemingly endless sources of money.....

I don't have my first deal yet either, but one things for sure, if I quit I never will get it.
I am determined to get this done, and I encourage you to dig in and make it happen.

@Jake Stenzi that's quite an accomplishment!
I see you've got a goal of 500 by years end, I would love to hear the story!

@Christopher Smith  An approach you may want to consider.  Most of the offers we submit on properties for ourselves or for clients will say cash or finance but the offer is not contingent on finance.  Depending on the size of the deal the cash portion of the Proof of Funds will be large enough to close but we want the option to leverage.  We request our lenders and/or private money folks provide us w/ letters that support a cash offer.  If it's a bank deal sometimes we'll get a silly asset manager or realtor that will counter & scratch out the finance section.  But that tells us they are interested in our offer & we'll put it right back in & point out that the deal's not contingent on finance & we need it in the contract for our lender.  It's amazing how often this works.  Granted- sometimes it doesn't work. 

Most of the clients we work w/ buying residential or commercial properties aren't using their own cash but the offers are cash.  Bottom line:  Work w/ your lenders and/or private $ folks to structure the money their lending you or at least the letters they are providing you so you can submit cash offers.  This means spending more time upfront identifying funding partners.

W/ all of that said- We also have a ton of pre-approved clients who submit offers contingent on financing & they just keep plugging away because all they need is one deal.  They get the one & they plug away again.  It's a marathon not a sprint.

@Joe Mueller My goal was to build wealth. I was rejected for 2 years by brokers and sellers(mainly due to creative financing offers). I remained disciplined and did not settle for anything that would not produce at least a 10% cash on cash return from day 1. Eventually I was able to purchase a 25 unit property that fit my criteria. Within 18 months of that 1st deal I was able to knock out 3 more deals. After that 1st deal, my credibility switch went off or something because the deals started coming out of the woodwork. The main thing that I have done different from other investors that I have networked with is that I remained persistent and disciplined. It got uncomfortable in the beginning and I actually quit for a few months. Its full steam ahead now!

@Christopher Smith

This is an old post that was brought up again. Congrats on your purchases. If you want to pull equity out on the properties, to purchase more you can do cash out financing based in appraised value for the first 4 mortgages. 

Here is a link for cash out financing; 

http://www.biggerpockets.com/blogs/5110/blog_posts...

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.