All Forum Posts by: Account Closed

I apologize for adding to the confusion here.

Will, I don't think anyone is saying rely on the 50% guestimate.

I use it as a gating factor to quickly look at possible deals. It is the first step only for me. After that I do exactly what you describe and dig into the details including reserves.

The statistical theory of large numbers bears out the 50% estimation.

That does not mean in some cases your actual expenses may be MUCH higher or lower. But, if you hold any give property long enough your expenses will even out to 50% of gross rents over the holding period.

Yes, you will exceed that when you have to replace the roof or get the joy of paying for some other large expense. But, over time, large numbers take over and it will settle to around 50%.

The people who get into trouble using this long term view of expenses are the ones who are doing short term deals.

For example, you buy a building based on estimating the expenses at 50% but six months after you buy you are force to repair a failing foundation. Unless you are holding for a long time, your particular average expenses on that particular property could be more than 50% of rents.

The 50% estimation rule is not sacred, nor guaranteed, it is just a tool investors can use to evaluate a potential deal. But, it is a tool grounded in lots of data, history and experience.

The real estate market is cyclical like all asset markets. In the 24 years I have been doing this pundits have proclaimed the end of the financial world at least 7 times counting the current one.

The current market is a buying opportunity much like existed in the early 1980's (just before I got in), 1987/88, 1991-93, and right around the turn of the millennium. In all of them, including this current one, cash rules. That is why in 2006 I was recommending to my newsletter subscribers and Field Guide members to start reducing debt and building cash reserves and sources of private money.

Those with ready access to cash are buying at huge discounts. The people who don't have to rely on "creative financing" are the ones getting the best deals. This will continue well into late 2010 or early 2011.

How things have changed...

Well, in 1984 when I started you really could assume an existing loan without lender approval in the vast majority of cases. Things were pretty simple and straightforward. Investors were typically sensible about what they bought and the debt they were carrying.

About that time is when the guru-market erupted with Robert Allen and the various me-too-gurus.

Since that time, there have been basically two real estate investing worlds. The one driven by the gurus where the investors "go crazy" over the method, tool or trick of the moment; and the real investors who basically continue to do business they way they always have. I am in the second camp.

To be perfectly honest and blunt, the biggest change over the last 24 years has been the number of new investors who tend to enter the market at or near the peak and buy from those of us who bought at the valley of the cycle.

Bill, you are exactly correct about title companies starting to request the trust documents and even a list of anyone who has or had beneficial interest during the time the title was held in trust.

No, they can't force you or anyone to provide them the information they request. But, then you can't force them to write the title insurance policy either.

We use trusts in several states and we don't typically have this problem because we provide everything related to our purchase, holding and sale of the property to the title company. Yep, that includes the trust documents and beneficial interest assignments.

However, I can guarantee you anyone doing their first deal through a trust needs to be prepared for more scrutiny by the title company and/or closing agent. They don't know you or how you do business.

I am still amazed that people don't understand this business is all about the relationship you have with other people who make decisions.

The underwriters and lawyers at the title company want to completely understand the risk they are insuring. I bet if you sat down with them and were willing to put everything on the table, assuming you have it, they would be able to make a better informed decision. A trust named the 123 Main Street Land Trust being involved in the transaction is going to raise red flags in today's environment.

Gatten's "system" is incredibly complex and there have been court cases in NY state proving it not quite as bullet proof as advertised. But, let's assume for a moment it is absolutely and completely bulletproof.

It is far more than is needed by 99.99999999% of all investors.

If you are buying sub2, a normal living trust is probably even more than you need considering the current market conditions.

The biggest problem in today's market from trusts is with title companies. Many are refusing to insure title at standard rates and many are refusing to insure title at all if a trust is recently in the title chain. There are ways around the problems but most of them come down to putting a real live person on the hook for the quality of the title through a Warranty Deed.

Just make sure you rotate the old stuff out and eat it before the expiration date.

Originally posted by BikerJim:

Sadly, many people THINK changing insurance causes issues with the lender and the title change.
However, after YEARS of subject to investing myself, as well as thousands of discussions about this method, I have yet to have a single person back up that claim with proof.

Besides, bottom line, at the moment, lenders have other issues more pressing than messing with a PERFORMING account/loan.

Yep. Lenders are not going to touch anything that even smells like a performing asset any time soon. It will be many years before lenders really care about sub2 transactions. Right now they would love it if all of their non-performing, upside down notes were sub2'd to someone, anyone willing to make the payments.

When you get new insurance, make sure its fire and hazard, and includes liability, rental dwelling/non-owner occupied.

This is cheaper than owner occupied insurance, and the right kind to get anyway.

Listen to Jim, he knows his stuff. Also, anything other than a non-owner occupied policy will be voided if you ever file a claim. So, you would have insurance only until you, well, needed insurance. Great from the perspective of the insurer, sux to be the insured in that situation.

Originally posted by Shari Posey:

Why is it up during this crisis?
a) Investors expect a bailout later this week.
b) All those millions of phone calls and letters to Congress convinced them to say no and let the market fix itself
c) smart people will always find was to make money

All three of those are in play at the moment and choice "C" will always be true.

I wish I could hear top economists rather than Wall Street investment bankers explain all the reasons why it is iimpossible for the market to correct itself. If our market can't handle this situation then our market is fatally flawed at its core and needs a total overhaul. However, if our market can correct itself, however painful the process, maybe we would come out stronger and rock the world again.

ps something is wrong here if someone else can edit me

Well, you might be interested in this then...

http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html?iref=mpstoryview

Originally posted by Jon Holdman:

No, you won't. Let me lay out a scenario. I don't think for a minute this will happen, but its possible.

"I'll still be buying" assumes the stores are still there to sell you something. They would not be. Business don't scale downwards very well. Business small and large have a certain amount of fixed overhead. A business that's profitable enough with a certain amount of revenue may swing to a loss with only a small decline in revenue. I saw on the local news last night a story about two restaurants that closed due to declining business.

If those businesses fail it will leave a void. That void will be filled by other businesses that are able to make a profit in the market. Always have, always will.

There has always been and will always be a credit market. The government does not need to be a part of it.

Yes, I think socialism is very bad and should be avoided at all costs. Yes, even if that means we have chaos from nobody buying anything. Which, would not happen by the way.

We have an economy that cannot be sustained in its present form. We have to move in one direction or the other. We must become more capitalist and let the financial institutions fail and rebuild from the ashes or we must become more socialist and take a huge step forward in implementing step five of Karl Marx's Communist Manifesto.

Sadly, I know the direction we are going to take.

Since I know it is going to happen I can do one of two things, prepare to profit from it or sit on the side lines and wring my hands together worrying about it.

BTW, the market is up almost 300 points as I write this because the general consensus is "something" will be passed later this week.

That "something" should scare the hell out of all of us.