Execution! "Houston, we have lift off!"
So I have come to believe that people who have all kinds of time to write BLOGS, constantly provide forum input and spend exorbitant amounts of time on Bigger Pockets or other forums are either extremely efficient with their time or are so successful that they have a staff of people that handle all their deals! I on the other hand, am still a beginner and have so much going on that I barely have time to sit still and relax much less write a BLOG post. I made a dedicated effort early on but then just got swamped!
OK, enough of my rantings, I have carved out time today specifically to discuss, like the post title indicates, the fact that I am executing my plan and, I am closing my first deal in two weeks! WOOHOO! So, lets take a look at my strategic plan that I laid out during my initial posts. Below is the larger strategy visually and I added some things to indicate my progress.
Everything that has a Green star in it reflects either completion of the task or significant progress that allows me to move forward towards my end state. What you will notice is that the three top LOE’s have some critical requirements starred. These are: 7- Secure Initial Working Capital, 12- Entity Submission (includes approval of entity) and, 13 – Establish accounts. These three IO’s allowed me to effectively acquire my first property along my Buy/Hold LOE.
What is also important to note is that although I have stars in all but two of my education LOE IO’s this LOE will never be considered complete. Why? Simple, there is so much to learn that I will never know everything in my given lifetime! Case in point, my wife and I attended a seminar conducted by a successful investor and friend of mine Larry Harbolt and during that time I learned a few new things! The more I know, the more I realized that I don’t know anything!
Needless to say, I am still seeking education through networking, experience, training, reading and any other way I can learn to increase my knowledge base and skill set. Each time I learn something new, I try to put it to use within my strategic plan and plug it in to areas that will benefit from the new knowledge. This has actually helped me develop a spreadsheet that I use when I look at properties that reduces the time it takes me to run the numbers and see if it is a workable deal or not.
Now, on to the first door! So this particular deal I got not from driving for dollars and sending letters or looking through the MLS but, via an REI meetup. When I started down the path of being an investor I started to join and attend several REIAs in my area. During my first attendance at this one, Beach REIA that meets on the third Thursday of every month at the Madeira Beach Hooters in Florida, I began a conversation with a gentleman that was a broker and just started getting into learning about REI. From this initial conversation, a second meeting then took place where I came out and saw the property and we discussed it over lunch. This led to more discussions and eventually an agreed upon deal. Additionally, this is off market so there are no realtor fees to pay!
What I loved about this deal the most is that he already had a buyer lined up! I will do a double close with me taking possession of the property then subsequently doing an owner financing deal with another buyer the same day. My buyer had some dings on his credit with little money he could put down so was having a hard time lining up lending from a traditional institution. This is where I come in. After running the checks on the buyer and establishing a good relationship with him we struck a deal that works for both of us. If for some reason he backs out before close, it won’t be an issue as the property will easily rent for enough to give me a decent cash flow.
The nuts and bolts of this deal are as follows:
1. Cash buy via my self directed ROTH IRA $79k (I would have preferred seller financing but the seller needed the cash).
2. Owner finance property to new buyer for $80k at 7.5% interest for a 30 year note.
3. Estimated cash flow that goes into my IRA is about $500 a month.
There are some that will say, “Why did you only sell it for $1k over your cash price?” The truth of the matter is that the buyer is a fellow Vet so the deal that I cut for him provides me a moderate ROI, allows him to have a home and will help rebuild his credit. If after a year or two he can secure traditional financing, I’ll let him buy the place for what ever is left on the principal and put that back in my IRA. Will I have made a ton of money? No but for me it was more important to help a fellow former soldier and learn from the execution of the deal than make a ton of money.
Even if he can re-finance after a year, after property taxes and insurance are paid I will still have earned about $6k. He will still owe a significant amount on the principal since the payments use a standard amortization schedule which means that I will still make about $5000 net if sold within a year. It’s not a whole lot but if I never made the deal I would be left with $0.
I’m not so deluded to think I am going to become a millionaire overnight, on the contrary, I am pragmatic yet creative and have the patience, tenacity and drive to grow my business one deal at a time.
To this end, I have another deal I am working on now that I am hoping to get seller financing on. This one will give me between $100 and $400 monthly cash flow depending on the terms that we agree upon with a down payment of between $100 and $5000. It all depends on what the seller needs. This one will go into my business though so the cash flow from this will feed into developing additional capital for other property buys. I am excited that things are starting to move forward and am looking forward to what the future brings!