All Forum Posts by: Account Closed

@David Dachtera I agree entirely with you, Not everyone wants to maximize profits. A lot choose lifestyle over continuing to turn the wheel. Which is why passive income suits a lot of people.

Reminds me of some clients years back whom I advised NOT to invest any money - just use a reverse mortgage to live on and when ready sell the large mansion they had to move in to the smaller place they intended to live in for the remaining years. Their home skyrocketed in value and the millions they made were all tax free profit. The only difficulty they had was there was surplus funds once they sold and moved - which then needed to be put somewhere - so ultimately they did invest.

There are a lot of financial illiterates who argue that the economic results of Buy and Hold are better than taking quick profits - which is completely incorrect, as you no doubt appreciate.

When it comes to making money Passive Income is a mere trickle compared to aggressive deal doing!

@Brent Coombs Thanks for your Comment,

You messed up slightly regarding the doubling in a year. Compounding monthly at 10% doubles every 7 months - and to make things round aim to make 12% a month. That way your $500k doubles in 6 to $1million and to $2million in 12 months. Real Estate Agents are not making that sort of bread.

There are a few other small points. The first is if you have $500k you do not put all of that down on One property. Using leverage gearing at 4 to 1 you buy  5 properties - putting down just $100k on each. End result should be 5 times the end figure = $10million. 

Next item - it is not necessary to have ANY money to do deals - you can borrow 100% of what you want. Do you want to do ONE property a month or 5?

Regarding the discount at which you can get properties - there is a ready supply from other Wholesalers who are offering 30% discounts. That is the least difficult aspect of this business. Of course you can look for your own deals - which I prefer, but when in a hurry just grab from the pile of properties the brethren have.

See how easy this business can be?

@Steve Vaughan Yes you have it correct - there are ways to deal with those incidentals - such as having the Sellers and Buyers and IRS cover the costs. Also you are on the right track with deal structuring - such as Options, Assignments,Seller Financing, Deferred Settlement and Installments. Far too many items to deal with in one short post - but I see you appreciate what needs doing and dealing with,

The 10% really should be the left-over amount and why you should aim for a larger gross figure. But when you do not have to pay out to Uncle Sam that drives your dollars a lot further.

You also are perceptive in respect of the list of buyers needed - and that is a priority in making things come together. It is an area in which I specialized for years - retired - and now like the Phoenix intend resurrecting - as there does not appear to be anyone out there doing it!

Thank you for your comment Steve

Buy and Hold is promoted by most property investors as the Holy Grail. How can so many people with money be so wrong?

Although many created their investment capital by wholesaling houses they now choose to become investors in rental properties instead of continuing to make a lot more profit sticking with wholesaling. The loss of vision appears to stem from their previous habit of handing properties on to investors and thereby giving up 90% of the profit on each deal they unearthed.

Some disbelievers dispute the fact that RE Wholesalers are able to get a 30% discount off house prices. Houses still can be bought at discounts regularly. Maybe no longer at 40% and 30% below market value - for the exercise choose a number that you can accept as an achievable discount and do the numbers for the following alternative to Buy and Hold. 

Another area of contention is that it is possible to sell a home at market value. After all Market Value can not be what people pay - or is it? Anyone who knows how valuations are made should be familiar with the concept that Market Value is what people are prepared to pay for properties today in the market for homes they wish to live in. Of course Investors do not pay Market Value - or at least rarely do. However the average family buys their residence paying full market price!

Are you familiar with the idea of a Business based on buying at wholesale and selling at retail? Heard of any businesses which do that? Like a Grocery Store, Most Retailers, and even Real Estate Traders (a variant of the wholesalers and investors in the housing sector)?

While it was common practice a few years back for RE Wholesalers and Investors to buy homes at distressed prices (40% off and more), today with improved market conditions that is a rare occurrence. However it is not uncommon for a house to be picked up at a 20% discount still.

As an example based on what is more than achievable consider the prospect of getting just a 10% discount on a home. Not every home up for sale - but certainly a large percentage of them - can be bought at a slight discount. This may be in view of the seller not having to pay an agent the 6% commission, or just being eager to dispose of their home in a timely manner.

To make the numbers easy say the Market Value of a Home is $500,000. A 10% discount results in the Buyer paying $450,000. If you want to dispute this possibility go in to the market place and make some offers!

A retail buyer - such as a family - will pay Market Price for that same house. In which case the Investor/Wholesaler will make $50,000 profit - before expenses and tax. Choose your own numbers so you will not argue what is do-able.

(You do not have to use the particular tax approach that I prefer - you can just adjust the numbers according to your tax wishes. I have a particular strategy which allows Tax to be deferred - and paid out in the distant future from subsequent borrowings against assets, which will have appreciated significantly. This is not an original concept - George Soros steered me on to it.

 The interest on the borrowed funds employed to pay the tax is even tax deductible and the actual annual interest expense on the borrowings for tax is paid out of earnings in subsequent years on the assets whose gains have not yet had to be realized. The deferred tax is actually invested (do not spend it unless you have a death wish) - compounded to produce untaxed capital gains (as long as they are not cashed out) - and the rental income and dividends pay the servicing cost of loans used to actually pay tax when the deferral is up. This will be explained in detail to disciples later on.)

Assume there is $45,000 profit left after costs (ignore the tax - or make a deduction of what you wish to pay if you insist on paying it). Look at the $45,000 in your hand and refer back to the dollars you actually paid for the property. Notice the symmetry? For an outlay in cash of $450,000 you made $45,000. That amounts to an immediate return of 10%, which you could get every month - and your capital would double every 7 months. Project returns forward 5 or 10 years - what are the numbers?

Okay - let's simplify the mechanics and only look at making $45,000 per deal each month and then end of year reinvesting ALL cash to compound at slightly less than what is an achievable rate.

When I say an immediate return, expect it will take about a month to complete a deal, so the beginning of each subsequent month you should have $445,000 to reinvest in another property - rinse and repeat. The capital compounding each month will see you with more than $900,000 after 10 months and more than $990,000 after ONE YEAR!

Let's assume you did not have $450,000 or $500,000 to begin with. Is that a realistic assumption? Even if you do have that money; say you are smart enough to understand how leverage works. If you have $500,000 - instead of buying just One House for $500,000 you could buy 5 houses - worth in total $2,500,000 - based on an LVR of 80%.

Just looking at you not having any money - you could borrow ALL the money needed - the initial deposit of 20% plus the balance to complete the purchase, meaning you can do the first deal using no money of your own. You can dispute the possibility as much as you like - that will not alter the fact that this strategy is being used every day!

The rental income is available when a house must be held, but as the business model is based on an immediate flip there is virtually little cost of borrowing money short term to complete the deals.

Thus it is possible to make $45,000 per deal - irrespective of whether you use your own money or borrow what is needed. Hence within 12 months you can have $1million sitting in your hand ready to go again for the next year. With the $1million in cash you could do 2 similar deals a month *paying ALL CASH each time. Continue to do one deal a month the same way as you started in year one with no cash. You should be able to accomplish 3 deals a month and make close to $3million in year 2. It is too early in the day for you to do the exercise gearing your cash and doing 10 cash deals a month using leverage (with a gearing ratio of 4 to 1). You might like to try those numbers after you have had a nap and are refreshed. As you receive $45,000 extra each month and reinvest that compounds - so in addition to 12 X $45,000 by year's end there will be compound growth on each month's profit. Okay the numbers are a bit wobbly so until you do it you can not see what the actual cash is at the end of each 12 months.

At the start of year 3 you should have $4million cash in your hand. Following the same format - investing All the cash so it compounds and doing one no cash deal each month 9 deals could be made every month that year to produce a profit of $9million. Which would see you then with $13million cash by end of year 3.

Track back to examine what the deal profit is per property. If you do not like the notion of deferring tax then pay it. Do all the sums over again working on a net profit of around $30,000 per deal instead of $45,000. Project the figures forward in time to 5 or 10 years.

@Hector Lozano - if you are serious about doing it - not just inquisitive, you may contact me on Skype for a chat - my id is hullo.hullo

Looking forward to a discussion

Dee (Dean)

LAW LESSON of the DAY.

There is Nothing weird in this deal. It is a common legal occurrence in real estate to have Joint Ownership of properties. The two most often used approaches as to have either  1) Tenants in Common - where people have a specified share of a property, and their names are recorded on title stating the exact percentage ownership, and 2) Joint Tenants - here the survivor gets ALL when the other passes on - Again all parties are recorded on title.

With Tenants in Common the share held by each person is transferred on death to their estate. It could also be sold, borrowed against, traded, donated etc. Whether someone is to have occupancy rights is just a matter of what the legal agreements say. Nothing strange to have rights to occupy for life or a specific period of time - rent free or with a nominal payment of rent, and or requirements for repairs and maintenance, plus rates and taxes. 

The same particulars can also be (should be) spelled out in a legal agreement between Joint Tenants.

Cap rates are warning signs. Too low - look for a market correction.

Too high - there is insufficient demand - look for a market correction,

You need to buy like Goldilocks - not too hot and not too cold.

Everyone knows that the way to get rich is to own Real Estate - but that costs money. People do not just hand you their Good Quality homes for no money. The problem is when you have No Money, Beggars Cannot Be Choosers.

With the development of what is known as Real Estate Wholesaling it is popular to tout No Money Down Strategies to Buying Properties. In most instances this does not occur. The RE Wholesalers do not end up owning any of the properties they contract to buy.

Instead what they do is actually assign the contracts they have with Home Sellers to Cash Buyers, Investors who have the money necessary to close on deals. In which case the Wholesaler makes peanuts. At times a Wholesaler does manage to get a property they can hold on to from a distressed home seller - using seller finance and Hard Money Lenders. However the homes acquired in such a manner are rarely properties you would want to live in.

As a Corporate Finance Lawyer with many years of experience in the Securities Industry and Real Estate I have been able to develop unique strategies that enable RE Wholesalers to become End Buyers of the Houses they contract to purchase. Thus enabling them to make the lion's share of profit on each deal instead of ending up with a handful of peanuts after assigning contracts to investors.

There are also substantial tax advantages with the specific techniques so there is little lost there too. Instead of making around $10,000 as the averages show, netting after tax just $6,000 it is possible for a RE Wholesaler to make well over $30,000 on most deals after tax - sometimes $100,000 on a home worth $500,000.

Most Wholesalers dream of being a Property Magnate. Which leads them to acquiring cheap houses for little or no money down. There are risks in this strategy - relating to the market, borrowing cost, and the economy.

Instead of beguiling yourself with the prospect of holding a vast array of poor quality houses does it make more sense to build a Real Estate Empire owning High Class good quality homes in nice areas? Certainly it does. And that is the only type of houses you should invest in - to buy and hold long term!

Say you can make $60,000 or more on a deal after tax and you have the opportunity to save $40,000 in tax or more if your earnings are higher ...

Which would you prefer to do:

1. Close Your Eyes and Pretend it is not possible?
2. Run Away - because you are frightened to try to reduce your Tax?
3. Think About It - and maybe ask someone else, your spouse, a friend or an Accountant?
4. Welcome the Opportunity ... and find out How?

@Natalie Kolodij   Yes - Corporation Lawyer with a specialization in Tax and Business Organizations for my Post Graduate Diploma from Law College after my law degree. 

I also qualified in a number of other professions with degrees, post graduate diplomas and experience - such as an Urban and Regional Planning (Masters Degree), Financial Planner, Securities Dealer, Real Estate Broker, Mortgage Broker, College Lecturer and Teacher in Economics - and few other things not especially relevant.