All Forum Posts by: Joe Villeneuve

Samuel,

What you presented was an excellent description of how a formal valuation works.  This is important in deciding if the deal will go through or not, but not setting the value.  For an investor, if you are looking at what it is worth to them, it comes down to what their exit strategy is, and the criteria that defines it.  It doesn't matter what the AP is, or what the seller says the value is.  Those two items matter when the deal is going through, but not setting the price of the offer.

If the seller and appraiser agree with the offer, then you have a deal.  If not, then you don't have a deal.  The offer price (value to the buyer) should NEVER be made based on what the buyer thinks it would take to get the property.  It should ALWAYS be based on the number it would take for the buyer to "want" the property. 

If my analysis says I need to offer $40k for a property that the AP is $50k, then the value of the property to me is $40k.  If I can get the seller to agree (eventually) then we have a deal...a deal I want.  If I can't get the seller to agree, then I still get the deal I want...none.  I don't want bad deals.

Bottom line is, well, the "bottom line".  I'm not interested in acquiring properties, I'm interested in acquiring wealth.  The only numbers (value) that matters to me has $$$$ in front of it, and no "-" sign.  I don't care how many numbers I have with "street names" behind it.

Joe Villeneuve
REcapSystem
A2REIC

Mike,  A big misconception about this area, thanks to the media, is that Michigan is in Detroit.  Some of the most wealthy areas in the U.S., are in the Metro Detroit area.

Joe Villeneuve
REcapSystem
A2REIC

Hai,

Not all Detroit area properties require a Rental License.  In fact, most don't.  I like Redford since it has high rents (900-1000), low taxes and ins. (200-250), and you can get a lot of these properties where the cost to buy/rehab is under $50k.  We have one now with the above numbers that the cost/rehab is under $40k, rent at 950 and T/I at 225...and this type of deal is everywhere.

You have to know the area though.  There are certain parts of Redford I wouldn't invest it (others like it though), but if you stick to specific areas, you'll find the above numbers to be the norm...and plentiful.

Joe Villeneuve
REcapSystem
A2REIC

Tyson,

There are a few options. Business loans, credit cards with intro rates for an extended period, LOC's, there are a number of different sources. Having alternative collateral is one of them. The source we use for this is actually an Equipment Lease/loan scenario where we get the equipment and a large cash loan...kind of like a rebate, but the cash part is very large.

  They all have the same important characteristic in common.  They are not connected directly to the property.  

Also, since they don't have to be paid back in its entirety right away, and thus can be used many times over (just keep making the monthly payments until the debt is paid off), the initial cost is irrelevant since every time we re-use the cash, the cost per use/property goes down.  If you use it right, you can use it forever.

Joe Villeneuve
REcapSystem
A2REIC

The true value of the property is different for each investor.  The value is, and should be based, on each investor's Exit Strategy.  If the investor wants to flip the property, then the value is based on including the the minimum profit from the flip as one of the "costs".  Hey, if you don't pay your self, who will?  More importantly, why bother?

If your strategy is to hold, the value is set based on your minimum cash flow.  If the house doesn't cash flow, and that's your goal, go onto the next one.

Now, the seller has their own set of values based on their criteria.  When both can get what they want, you have a sale, when they don't...you move onto the next one.

What works for you isn't the same for the next person.  I don't offer based on a % of asking price.  I "reverse engineer" my offer based on my criteria.  If it shows I should make an offer equal to the AP, I use other factors to decide my offer, but I know I'm making one.  If it shows I need to offer 10%, or 20% or 50% less...that's what I offer.  I don't want it any other way.  Why would you?

The goal of an investor isn't to acquire properties...it' to acquire wealth.  Losing money on a flip, or having negative cash flow (or too low CF), isn't worth it.  It doesn't matter how many properties you have.  The only numbers that matter are the ones with $$$$ in front of it (and no "-" sign in front of that).

Joe Villeneuve
REcapSystem
A2REIC

Dev,  

We have competition her too.  I refer to it as their "private auction" after the foreclosure auction.  LOL.  We just wait until the initial accepted offers are withdrawn, the price comes down, and we spring with cash and a fast closing.

Joe Villeneuve
REcapSystem
A2REIC

William,

The concept of NLD is simply money that you use that doesn't use the property as collateral.  That doesn't mean you can't get a loan that has a different asset used as collateral, or a loan that uses no collateral at all.  You just can't use the property as collateral or you need to pay it back when you close on the flip or refi if you hold.  What you need though is a way of making the monthly payments on this debt.  If the original property can handle it that's great, if not we use what we refer to as a "cash reserve".  Sometimes we even fund this CR out of the same debt we are using it to pay off.

I know this seems expensive to some, maybe even confusing, but it's hard to explain in text only.  If I had my PowerPoint it would be much easier...and much clearer.

As far as the expense in concerned, this is the cheapest way to fund you'll find.  The reason is simple, we're using the money over and over again...but only paying for it the first time, which means the initial cost is reduced with every use.

Joe Villeneuve
REcapSystem
A2REIC

William,

There are many opinions on which is better, equity or cash flow.  I choose CF every time.  What are you going to do with equity?  Equity costs you money...unless you access it, by selling the property (then you're starting all over again), or refinancing (which gets part of it out, but may increase the cost on the property too high and make the little "cash out" you get at closing not worth the cost each month in reduced cash flow.

Try this.  When you buy the property, try to use "non-lien-able" debt.  This is what we refer to as a "cash like substance".  If you used a mortgage when you buy, you have to pay it back at refi and/or sale.  If it's NLD, you don't...you do however have to pay it back over time...so make sure your cash flow can cover it.  

Why is this a good way?  Simple.  If you refinance (remember, with no lien on the property you actually have 100% equity), the money you get from the loan is all yours to use (as long as you have a means to make the monthly payments on the NLD).  Now re-use that money on the next house.  Repeat these steps over and over again from the Cash in, and refi out.  You are actually using the same money more than once, but only paying for it the first time...from the first house's cash flow.

Joe Villeneuve
REcapSystem
A2REIC

Dev, I agree with your assessment on going after foreclosures...before they are foreclosed on. REO, HUD even FMA is where I go. Every market is different though for this. Here, it's a target rich environment.

Joe Villeneuve
REcapSystem
A2REIC

Either lease it or Lease Option it.

Joe Villeneuve
REcapSystem
A2REIC