All Forum Posts by: David Nolan

@Aj Bowman The question you might want to ask yourself is how do YOU make money? I make money doing deals, not working as a GC. Even though I know what to do I am more profitable doing what I love and delegating everything else. If my deal will not allow enough margin to hire professionals to do the work then all I have done is bought myself a job and a poor deal. I have not invested money. Good deals have enough money in them to allow me to hire professionals across the board from designers, architects, GC's, landscape gardeners, engineers, surveyors and the list goes on. I make money doing deals not being something I am not.

Get your self a really good team of professionals that you can trust to do the job to the standard you expect and then let them do their jobs. That way you can focus on what makes YOU money.

Good luck on our journey!

@Nathan W.I am a professional investor and that really means I make my decisions based on my set criteria. I do not look for just one type of deal and therefore there are multiple opportunities around us at all times. It is not so much about being better connected, it is more about knowing how to identify better opportunities. Diamonds in their natural state don't shine too bright. You need to know what you are looking for to find them. Likewise, a good property deal can be staring us in the face and we might not see it because we are too blinded by looking for a specific thing. Nothing can replace real life experience, and that only comes with time and doing deals.

I would also suggest that many of the experienced posters on this site do not overlook the fact that people work in unrelated fields. Where you work is totally irrelevant. The fact is that when you want to invest in a property you then want to work in my field and I, along with others, are trying to help you understand that in my field there are more issues you might want to consider. I would also suggest to you that right now in your market there are experienced professionals making very good deals. How do I know this? Because there are very good deals in all markets. It's what you do with them that make them very good.

I hope this thread has been of help to you and I wish you well in your future endeavours.

@Nathan W.The simple answer to your now clarified question is what is your individual risk profile? If you are not adverse to being in debt and you believe that this propriety is worth the effort then clearly you should use option 3. That way you can find multiple properties using your cash flow from your job to generate more cash flow which is what you are looking to do. You can buy multiple properties using this model and generate potentially more assets than you can by saving the deposit. That is just basic mathematics. However, it still comes down to risk. Just because the mathematics make sense to buy with OPM it does not mean it is wise to do so.

The numerous comments around this thread are there because the people commenting, me included, are trying to say to you that whilst academically the mathematics work and in fact you could build an even bigger funded model by using even more creative financing techniques, it doesn't mean you should. Using a HELOC for the deposit is not really creative.

If it were only a matter of mathematics then everyone with half a brain would make millions in this business. It is not. It is about risk management. So, whilst you may have a better understanding of what is involved than other novice investors there are many people who post on this site who do not and the comments you experienced would be applicable to many of those posters. The less experienced investor, as you appear to be from your posts, because an experienced investor would not have started this thread in the first instance because they would have already known the answer, are looking for help and guidance. I hope this helps.

@Nathan W.It appears to me that you just want to be right no matter what others try to say to you. The fact that you have so little experience in property investing is RISK enough alone. In fact there are so many potential risks it is scary at times. But you have never mentioned in your threads the fundamental of why you would buy this property. 

Where in the current cycle does it sit? What are the key economic drivers that will increase value moving forward? What are the risk mitigation strategies you intend to employ? What is the IRR of this deal? What is the NPV of your cash flows? What is the possible effective of inflation against your assets cash flows? What other properties have you compared it to? How are you accounting for your time and effort in managing this investment? This list could go on and on.

You appear to have an answer for every scenario that is put forward and that is not a bad thing. The real issue is, what is the reward for taking this risk? Is it worth it? If you believe that the reward you may receive is worth the risk you will take then this thread needs to end and you can buy the property and we can all move on. However, if you want to learn from more experienced people then use some of that intelligence that you are happy to demonstrate to us all that you have and listen, PAY ATTENTION to what is being said and stop trying to prove us all wrong. The formula you are looking for is called the RISK/REWARD Ratio.

You mention that many people here on BP would jump at this deal, or one just like it. Well I can suggest that I doubt if any of the SUCCESSFUL, EXPERIENCED investors would buy this just for the little cash flow it might yield. Without knowing if this had a big upside that I can identify today and know how that will play out I for one would not touch it. Investing for this little amount of cash flow is a fools folly. Property works in cycles and when the cycle turns down you will be losing as much or possibly more than you made on the upswing in the cycle. If you do not understand this then I suggest that you learn some more about what drives property values.

There are numerous challenges for all of us when we start out in this business and one of them is that we do not know what we do not know and it is then that we would be wise to seek guidance from those more knowledgeable and put our opinion to one side. Learning requires an open mind not a closed one.

As for not wanting to accept someone's advice it is your prerogative, but all advice is just one person's opinion, just like this is mine, and it is given with an honest effort to assist you in your endeavours.

@Benjie DeVeraIt appears that you have little to no experience in building. Given this is the case then I suggest that before you do anything consult with a GC and or Architect to get a clear understanding of what you are getting yourself into. Re modelling properties is fraught with danger even for the most experienced operators. Don't fall for the trap of thinking it is too expensive to get professionals in to do the work. Quite often the real costs come from fixing mistakes made by not knowing what you are doing. If it is too expensive to hire professionals then the deal is probably not worth the risk.

In regards to being at the property to manage I would suggest that unless you know exactly what is going on, i.e. you are experienced in this kind of work, I am not sure what you would manage. How could you give guidance and instructions to others without knowing what needs to be done?

Hire the professionals and if the figures don't stack up then move on to another deal.

Good luck on your journey!

@Nathan W.It appears that you are looking at the financial viability of an investment to accelerate your savings. That is to say, you would be forcing yourself to save the money each month by having to pay off the HELOC, if you want to get it paid off in 27 months, and the additional $220.00 per month is a bonus. But here's the thing, or the advice.

In your imaginary scenario you are looking to use your borrowing capacity to get into a deal. That has a cost, because it has a risk attached to it that you would do well to understand.

Secondly, you are only going to make $2,640.00 per annum when you take this risk. Is that worth it? If you answer yes then you should choose option 3. If you answer no, then don't choose option 3.

Third thing. When you have cash of your own to invest you will treat the risk differently than when it is all borrowed money. This is a fact and would be acknowledged by every successful investor in this business.

Finally, I don't know how much experience you have in this business but I would suggest that when a veteran of the business such as @Account Closedoffers there EXPERIENCED opinion you might want to be a little more gracious in accepting it instead of challenging the man. You don't get over 1,000 votes on this site by talking through your derriere, so to speak. If you know what you are doing, which judging by your post I doubt, then perhaps paying attention to others rather than trying to push an opinion that may or may not be correct is a little foolish. This site helps lots of people learn the ropes and it is people like Bob and many others than make it a success.

Good luck with your imaginary deal. I hope you have received the advice you are looking for.

@Joshua WomackCAP rates are a function of the assumed market value of a series of cash flows based on current economic factors. A 10 Cap is a 10 year payback period where a property is paid for all cash and the NOI remains constant, a 5 CAP is a 20 year payback period under the same conditions, a 12 Cap has a 8.33 year payback period etc. It is simply telling an investor what the payback period will be given the inputs into the calculations used. The quality of the income stream is determined by the risk associated with that income stream and thus the yield is a true reflection of the market's appetite to risk. The higher the perceived risk the higher the yield needs to be to attract an investor. The higher the yield the shorter the potential payback period will be. That is why some properties have lower CAP rates than others. Investors perceive lower risk in the lower yielding investments."

As @Account Closedpointed out cap rate is a measure of NOI/Purchase price. If you change your purchase price you will change the CAP rate. Likewise, if the NOI changes so to will the CAP rate based on a fixed purchase price. So, when I want to make an investment decision I would look at the NOI and measure what I perceive as the risk to that income stream and then based on the yield I am happy to accept I would set my maximum purchase price to reflect that yield and thereby creating a CAP rate. Let me give you an example. Let's assume a NOI of $24,000.00 per year. Imagine the perceived risk warrants a return of 12% on my investment, assuming a full cash deal. So for $24,000.00 to represent 12% I would set the purchase price at $200,000.00. A yield of 12% on $200,000.00 is $24,000.00. This has payback period of 8.33 years assuming the NOI stays the same throughout. It would have a 12 CAP. A 12% yield on the purchase price based on current NOI.

However, the only true relevance CAP rates have is as a measure of perceived risk by the market overall in relation to the income stream from that property. It has nothing to do with what you can personally do to improve the income or reduce the risk. That is where the money lies. In being able to do either of those things or both. Increasing income and reducing risk will make the property more valuable as the quality of the income stream goes up the risk comes down so the expected yield is less, ergo the CAP rate will effectively be lower. Thus, if the income stream of $24,000.00 was made less risky and the market would therefore accept a yield of say 10% instead of 12% then the property would be worth $240,000.00 not $200,000.00.

Hope this helps.

@Mariah FoslienI would suggest reading "The Richest Man In Babylon" by George S Clason if you keep losing money on investments. This book is just about the best book ever written on wealth creation. After you have read this book do a lot of research here on BP and find a strategy that you resonate with. Once you find your ideal strategy stick to it and become a master of that.

Good luck in your endeavours!

@Kyle McCorkelSimply make an offer on the terms as you want them subject to your due diligence. If they accept you still have an exit from the deal through your due diligence period. Don't over complicate it. Keep it simple. If they accept your offer or ask for more details then feel free to explain your plan.

Seller's simply want to sell their property so make your offer as appealing as possible without all the hoopla.

@Robert T.Sounds like a good decision. You could still do a lease option, just do it right. I am sure that you will discover in your career that dealing honestly and ethically will take you  along way. I do deals in the USA all the way from Australia because I get to deal with honest ethical professionals. People I can rely on to do the right thing by everyone concerned. If I chose the wrong people it would be a nightmare, instead it is no more difficult than dealing in my own backyard. Dealing with good people will make your life a whole lot easier than dealing with those whose morals and ethics are questionable, I know from cold hard experience. Good luck on your journey!