All Forum Posts by: Tom Cafarella

Hi Evan

I came from a finance background myself and had a similar situation to you when I ended up getting into real estate investing.

There is NO DOUBT that if you want to do residential real estate investing that you would be better off choosing the position that gives you more free time.

The reality is that unless your current job does the exact kind of investing that you want to do as a real estate investor that most of your job experience will not be applicable. I actually tried going this route myself and I can tell you that almost none of it translated into becoming a mom and pop local investor.

I think at the end of the day, you need to really think hard about how much you want to become a real estate investor and what type of real estate investor you want to become. For example, if you want to be a buy and hold investor, the path would be much different than if you want to be a fix and flip investor or a wholesaler. If you can fill me in on your goals, I’d be happy to give you a more in depth answer as I transitioned from the corporate world to a full time real estate investor about 10 years ago.  

Hi Nate,

While I am not local, I do have tons of knowledge on flipping/managing contractors. 

 It has been my experience that using a GC is always the better route and I use a GC on 100 percent of my own jobs.  What I have found is that when you hire the right GC, you are getting all reliable subs underneath them.  By reliable, I mean both that they show up to work and that they operate in line with budget.

The problem that I have always had when trying to hire all of the subs myself, is that there is always 1 or 2 subs that we end up having a problem with on any one particular job and in the end that ends up costing us more money.  For example, if the electrician that you hire just walks off of the job, you may end up paying nearly double for the electrical work because you need to hire a second person.

The other reason that I believe strongly in the GC model is because in many cases the GC has workers that stay with them all year round and they are able to pay them a lower rate because they are guaranteeing them consistent work.  For example, a GC may have painters that are with them all the time and give the GC a premium rate.  If you go and try to hire that same painter, they will likely end up charging you more.

I am not saying that you can't put together your own team of subs, but I have found that it is a lot more work and has never actually had a financial benefit for me.  

Hi Craig,

If you want to get good deals, stay far away from the MLS. It is nearly impossible to get a good deal there. You want to be fishing in a pond where no one else is, and once stuff hits MLS, you will be competing with too many people in order to get a great deal.

If you have capital, direct marketing is definitely the way to go.  You won't be wasting your money at all.  The money you save on the acquisition price will far exceed the amount you would spend on the marketing.  I wouldn't worry about getting in over your head with the amount of leads.  That would be an incredible problem to have and would be unlikely in the beginning.  

I would take the following steps:

1.  Determine what kinds of properties you want to buy.  This may sound simplistic, but you need to get laser focused on exactly what you want so that you can then plan your marketing campaigns.

2.  Build a database of all of these properties in a CRM preferably

3.  Find all of the owners contact information(cell phones, correct mailing addresses, emails, etc)

4.  Market to these people on a consistent basis:

a.  Calling them(either you can do this or you can hire someone to)

b.  Mailing them

c.  Emailing them

d.  Using facebook ads to stay in front of them

e.  Using google adwords to target them.  

If you are going to generate all of these leads, you need to properly monetize all of them, meaning that you make sure that you are making as much money on all of them that you can so that you are getting back all of the dollars you are spending and then some.  This means that you are:

1.  Buying the absolute best deals that come from these leads(you cherry pick the best ones)

2. Wholesale the deals that are just "ok" to other investors who are desperate for deals and are sick of buying on the MLS

3.  Have an agent partner that you are referring the deals to that are not interested in a true investor offer(this will be 80% of your leads)

4.  Have an agent partner who can help you generate and profit from generating buyer leads on all of the listings that you have(there is big money in this if you do it right and it is pretty easy to do)

Hi Ethan, my recommendation would be to not spend a ton of time with goals or a business plan right out of the gate.  Maybe a general outline of your goals, but I think if you are just starting out, it would be tough for you to even know the appropriate steps for a business plan. 

For any real estate investor, the name of the game is generating leads for motivated sellers.  That should be your top priority on day 1.  If you can successfully generate seller leads on day 1, everything else will fall into place.  

In order to generate leads, you should start putting together a database of motivated sellers(for example: notice of defaults, vacant property, expired listings etc) and then find their contact information and get in touch with them in order to make a cash offer.  

If you make enough offers, you will get great deals and that is the name of the game.  Let me know if you have any questions on this.  

Ah, I'm sorry, I just made the assumption that you hadn't used FHA before. That makes the things I said not applicable. The other things definitely apply. Other options would be:

1 Refi your primary if you have equity to use as a down payment

2. Borrow from retirement account

3. Partner up with someone who has not used FHA or who would qualify for FHA right now(parents, siblings etc) a lot of times don't want to own a primary or not yet.

1. Go FHA on your first deal. All you need is 3.5% down. They even have some zero down programs now

2. In a year or two when you are ready keep that one and buy another FHA

3. You can continue doing this with FHA a few times

At the same time that you are doing this, do 2 other things:

1.  Try to prospect to sellers who will take back notes on their multis.  It is not the easiest thing in the world to convince people to do, but it is doable

2.  Start raising capital from other people who want to earn a 10-15% rate of return on their investment and partner with them on some multi family purchases and if the cash flow is strong enough you will be able to easily pay them.  

I was thinking the exact same thing recently.  I'd be curious as to the responses that you get.  Definitely great cash on cash returns on paper.

@Jay Hinrichs are you back from Paris?  Wanted to see if you had any time to connect this week...

@Mila Pavo

Mila Pavo @milapavo would be a good person to ask.