All Forum Posts by: Corey Conklin

Quote from @Zach Howard:

Quote from @Corey Conklin:

Quote from @Zach Howard:

Quote from @Corey Conklin:

@Zach Howard Using OPM isn't a bad strategy when it comes to real estate. The problem is thinking when you are starting out that you should use 100% OPM. 

Don't use this money for down payments, and don't use it to be 100% leveraged. As others have said you WILL fail. There are other ways to use OPM and not be as risky about it.

What you should do is leverage this money at 80% LTV and put 20% of your own money into the deals. That gives you a great advantage to the lending investors are getting here in the states with the much lower interest rates.

As others suggested you could also lend this money out for 10-12% and make your money that way and not put yourself on risk on the asset. The problem there is you only have 200k and there are a lot of local lenders that offer similar same terms, so why would anyone chose someone outside of the states? If you go this route you better find a way to set yourself apart. That means you'll probably have to take on riskier borrowers or agree to riskier terms.

My advice - If you don't have boots on the ground here in the states (that you can rely on), or someone you know you can trust to borrow this money then I wouldn't risk it. Make those connections first.

I know you want to take advantage of a great opportunity in your lending terms but that's only a piece of the pie when it comes to success in real estate. 

 I'm curious as to why you suggest putting down 20% of my own money. Somehow I think it's better to hold onto my own money and keep that dry powder on the sidelines waiting to get into the game if there are some emergency expenditures (haha, very likely with the kinds of deals I'm thinking about in class C neighborhoods). I can't wrap my head around your ideas, but I would really love for you to educate me on your thought process. And why 20-80, is that some magical ratio, or perhaps it's backed up by some sort of statistical analysis? 

I'm still really not sure what to do, so thank you very much for your contribution to this thread, I hope you'll say more. I'm still in reconnaissance mode... so need to collect as much information and knowledge as possible before deciding what to do. 

 20-80 is more of a rule of thumb and not a "magical" ratio. If you have a good understanding of your market, asset class, risk profile, etc. this ratio can change accordingly. One thing I can assure you, there isn't an asset class in the world that would have me comfortable at 100% leverage.

Your money on the sidelines is great in principal but in reality it will be put to work covering the net loss on the properties you buy as you will be overleveraged and won't be able to cover your operating expenses with the rent. So really to have a higher chance at success you should have both money to put in the deal to lower your leverage AND money on the sideline to cover those potential cap ex projects. 

As you seem to be aware, class C is risky. Having no experience is risky. Not being in the country you want to invest is risky. 100% leverage is risky.

Lowering your leverage point is one of the easier ways to decrease your risk and therefore increase your odds at success. If you had 20 years of experience, great connections in the US, and knew your market in and out then I would say you could probably leverage at a higher rate and could probably manage that risk because you have substantially decreased all of the other risks.

You should really study what happened in the US during the 80's when overleverage on real estate put a lot of people in a bad spot. This is what got Dave Ramsey in trouble years ago and that's why he preaches financial advice the way he does.

Back to the original topic. I'm thinking about getting a 200k personal loan - I'll use my salary to repay equal monthly payments for the next 5 years. As long as I don't lose my job and don't have any major financial surprises, repaying this loan is not a problem. Another way to think of this is that the repayment of this loan has nothing to do with what I use the 200k for. Having said that, I'd like to put the 200k to work, otherwise what is the point of borrowing the money in the first place?
 
I think then that if you were me you would use the 200k to purchase something outright in cash, and not use the 200k for down payments on 1 or multiple properties - fair?

If I were you I wouldn't invest in real estate at all. 

You seem to be getting caught up in putting money to work. In order for money to go to work it needs to be invested properly. If you do that wrong you might as well throw it out of an airplane. Investing in real estate can be lucrative but it's not as easy as real estate "gurus" on podcasts say. 

You have every odd stacked against you when it comes to investing in real estate at the moment (multiple people have provided multiple reasons). If you want to flip those odds it's going to take a lot more than throwing 200k into some of your own real estate deals. You will need to find partners, you will need to travel to where you wish to invest, you will need to understand the ins and outs of the business by being actively involved and treating it like a business and not some super passive investment.

If you don't want to do that work I suggest you just put that 200k into some sort of diversified mutual fund that can make you 10+% on your money without any of the work of real estate.

At the end of the day this is just my advice and I'm only a stranger on the internet. For all I know you could be one of the first people to invest out of country, with no experience, in class c assets, at 100% leverage and be highly successful. 

Do what you think is right for you and put up the fight to make it work out if you have to.

Good luck and I hope it all works out for you!

Quote from @Zach Howard:

Quote from @Corey Conklin:

@Zach Howard Using OPM isn't a bad strategy when it comes to real estate. The problem is thinking when you are starting out that you should use 100% OPM. 

Don't use this money for down payments, and don't use it to be 100% leveraged. As others have said you WILL fail. There are other ways to use OPM and not be as risky about it.

What you should do is leverage this money at 80% LTV and put 20% of your own money into the deals. That gives you a great advantage to the lending investors are getting here in the states with the much lower interest rates.

As others suggested you could also lend this money out for 10-12% and make your money that way and not put yourself on risk on the asset. The problem there is you only have 200k and there are a lot of local lenders that offer similar same terms, so why would anyone chose someone outside of the states? If you go this route you better find a way to set yourself apart. That means you'll probably have to take on riskier borrowers or agree to riskier terms.

My advice - If you don't have boots on the ground here in the states (that you can rely on), or someone you know you can trust to borrow this money then I wouldn't risk it. Make those connections first.

I know you want to take advantage of a great opportunity in your lending terms but that's only a piece of the pie when it comes to success in real estate. 

 I'm curious as to why you suggest putting down 20% of my own money. Somehow I think it's better to hold onto my own money and keep that dry powder on the sidelines waiting to get into the game if there are some emergency expenditures (haha, very likely with the kinds of deals I'm thinking about in class C neighborhoods). I can't wrap my head around your ideas, but I would really love for you to educate me on your thought process. And why 20-80, is that some magical ratio, or perhaps it's backed up by some sort of statistical analysis? 

I'm still really not sure what to do, so thank you very much for your contribution to this thread, I hope you'll say more. I'm still in reconnaissance mode... so need to collect as much information and knowledge as possible before deciding what to do. 

 20-80 is more of a rule of thumb and not a "magical" ratio. If you have a good understanding of your market, asset class, risk profile, etc. this ratio can change accordingly. One thing I can assure you, there isn't an asset class in the world that would have me comfortable at 100% leverage.

Your money on the sidelines is great in principal but in reality it will be put to work covering the net loss on the properties you buy as you will be overleveraged and won't be able to cover your operating expenses with the rent. So really to have a higher chance at success you should have both money to put in the deal to lower your leverage AND money on the sideline to cover those potential cap ex projects. 

As you seem to be aware, class C is risky. Having no experience is risky. Not being in the country you want to invest is risky. 100% leverage is risky.

Lowering your leverage point is one of the easier ways to decrease your risk and therefore increase your odds at success. If you had 20 years of experience, great connections in the US, and knew your market in and out then I would say you could probably leverage at a higher rate and could probably manage that risk because you have substantially decreased all of the other risks.

You should really study what happened in the US during the 80's when overleverage on real estate put a lot of people in a bad spot. This is what got Dave Ramsey in trouble years ago and that's why he preaches financial advice the way he does.

@Zach Howard Using OPM isn't a bad strategy when it comes to real estate. The problem is thinking when you are starting out that you should use 100% OPM. 

Don't use this money for down payments, and don't use it to be 100% leveraged. As others have said you WILL fail. There are other ways to use OPM and not be as risky about it.

What you should do is leverage this money at 80% LTV and put 20% of your own money into the deals. That gives you a great advantage to the lending investors are getting here in the states with the much lower interest rates.

As others suggested you could also lend this money out for 10-12% and make your money that way and not put yourself on risk on the asset. The problem there is you only have 200k and there are a lot of local lenders that offer similar same terms, so why would anyone chose someone outside of the states? If you go this route you better find a way to set yourself apart. That means you'll probably have to take on riskier borrowers or agree to riskier terms.

My advice - If you don't have boots on the ground here in the states (that you can rely on), or someone you know you can trust to borrow this money then I wouldn't risk it. Make those connections first.

I know you want to take advantage of a great opportunity in your lending terms but that's only a piece of the pie when it comes to success in real estate. 

@Richard Bautista

I'll keep it simple. Yes, this is too good to be true. 

Assuming all of the information you provided is in line.

i.e. You are a high w2 earner, The house is worth 110k today, you are buying from your grandma for 60k in exchange for free rent for life, upside ARV of 200k.

The costs of owning the house will help provide tax relief on your high w2 earnings, you are buying a great chunk of equity that will pay off in the future, and you and your grandma are doing each other solids. I would do the deal if I were in your shoes.

My first question is why did a cash flowing asset lose it's cash flow? You haven't provided enough information on that to allow specific advice.

If you purchased the property in 2020 you should still be at a good interest rate (assuming a 5 year balloon ARM). I know taxes and insurance have gone up a lot in that time so I understand that problem but the solid rent increases in that time have been able to cover most of that (at least for me it has worked out). Have you not increased rent?

Have you had larger Cap Ex projects that you didn't anticipate? Roof, HVAC, sewer, etc.

Has the property been poorly managed? i.e. longer than normal vacancy, bad tenant screening, poor maintenance, skipped rent payments, etc.

There could be a handful of reasons why it lost it's ability to cash flow. Instead of dumping a property that isn't cash flowing I would understand why it isn't cash flowing. If it's something that you have caused then it needs to be corrected. If not you'll just 1031 into another property to fall into the same trap.

Quote from @Jared Leggett:

Quote from @Corey Conklin:

I know that moving away from home isn't what anyone really wants to do but in your situation it would absolutely change your life, financially (and for the better) if you left.

Again, I don't know your situation but I can tell you that a sanitation worker in a small town in Kansas (town of about 12,000 people) makes more money than you do living in NYC. The cost of living is probably 1/10 that if NYC too. I'm not saying you need to move to small town America but I wanted to give you a comparison.

The only way I can see you staying in NYC and looking to invest in real estate is to find a way to make more money. Learn a valuable skill set that will allow you to make more money, therefore have more financial flexibility. This will cost time and money and can be just as difficult as moving away from home.

If you want to make it you'll need to do some hard things and make some hard decisions. It's up to you to decide what "Hard" you are going to choose.

 yes I definitely see that I'm going to have to make some difficult decisions, just not sure what I'm willing to sacrifice. There are so many different routes to real estate that I can take but I cannot tell which would be the best for me. Thank you for the insight Corey, definitely gave me some things to think about!

 @Jared Leggett Also remember you're still really young. Stay patient, work hard, never stop learning and focus on helping other people. You do that and success will be inevitable. 

I wish you the best of luck on your journey!

I know that moving away from home isn't what anyone really wants to do but in your situation it would absolutely change your life, financially (and for the better) if you left.

Again, I don't know your situation but I can tell you that a sanitation worker in a small town in Kansas (town of about 12,000 people) makes more money than you do living in NYC. The cost of living is probably 1/10 that if NYC too. I'm not saying you need to move to small town America but I wanted to give you a comparison.

The only way I can see you staying in NYC and looking to invest in real estate is to find a way to make more money. Learn a valuable skill set that will allow you to make more money, therefore have more financial flexibility. This will cost time and money and can be just as difficult as moving away from home.

If you want to make it you'll need to do some hard things and make some hard decisions. It's up to you to decide what "Hard" you are going to choose.

The best way to leverage 80k in this industry is based off of your skill set.

Are you handy? have a construction background? Do you have property management experience? Do you understand the in's and out's of the market you wish to invest? Have extra time to spare working on the business? Have banking or insurance connections?

If you are just a warm body with 80k and no applicable skillset, I wouldn't bother. Sweat equity is the best way to grow in this industry with that amount of money. If you don't wish to (or have the time to) roll your sleeves up and do some grunt work I would just stick to traditional investing. Don't let people tell you that this business is passive for someone in your situation, because that's not the case. 

How you buy the deal isn't always the most important piece. Making sure the deal is a good one is the most important piece. If I can buy a great property at 70% ARV I'll buy it with cash all day long knowing I can refi out of it and get my money back.

I used to think that cash flow was the most important thing when buying real estate but really it isn't. Finding ways to recycle cash/buy equity is the name of the game. Find ways to get your money back out of deals! Obviously don't buy a deal that will put you in the hole every month but don't expect that you are going to be good on $300/mo. in cash flow either. One major repair and that's all wiped out (I see people gripe about that all the time)

The best use of your money is to find ways to make money from it. i.e. Find deals where you can by $1 with $.75. If you do that you'll be successful.