ExtremePerspective

Common sense perspectives and finding a way to retire

Archive for the ‘real estate’ Category

Post featured on Real Estate Investing Carnival

Posted by Paul on January 15, 2007

One of the posts I’ve written here has appeared on the Carnival of Real Estate Investing

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Hard Money Approved

Posted by Paul on January 10, 2007

One of my real estate goals for 2007 has been to find sources of money to fund purchases. I had applied to Community Preservation Corp but they can’t seem to make a decision. I had also applied to BrookViewFinancial. Today they finally approved a $150K line of credit for me!

When I first read about hard money lenders the line was that they didn ‘t care about the credit of the person applying, just the equity of the property. Now it seems they are becoming more like banks and want people with good credit scores and adequate cash flow. I was not going to get approved at first due to my cash poor balance sheet. However, thanks to the sale of some property, I have some cash on hand now, so Brookview decided to give me a line of credit. They will fund up to 75% of ARV (after repaired value) including purchse price and repair costs. Funding repairs is something a conventional lender will not do.

I think that with the cash on hand now I also could get conventional financing since I have about $75k of equity in the house I have rented, but I know this type of loan takes about 6 weeks to process. Since my focus is on foreclosures I need to be able to close much faster than this. None the less, I feel I am about 40% of my way towards my goal of having $500k available for funding deals.

I am becoming more and more convinced that I need to build up a war chest of private money funding to build a successful real estate business. I’ve got an audio CD from Don DeRosa’s Private Money course and have made up a Brochure to hand out with it. Now, I’ve got to talk to people. This week I have sent out the CD to friends and family that might be in a position to invest. I also made up a Power Point presentation and want to to a luncheon seminar.

Right now I have two deals I am working on. Both sellers in foreclosure and neither has equity in the property. Both properties have mulitple loans, so I am going to make short sale offers to the junior lien holders and see if they will bite.

Posted in real estate | 1 Comment »

The Illusion of Knowledge

Posted by Paul on January 8, 2007

“The greatest obstacle to discovery is not ignorance, it is the illusion of knowledge”
Daniel Boorstin, 1984 Librarian of Congress

I am a naturally skeptical person (probably why I am an engineer) and I tend to analyse everything to death before I make a decision. But unlike many people I try to analyse things impartially and do not depend on opinions of the uneducated to form my ideas. Nearly everyone has opinions that are mis-informed about everything whether it is health, sex, marriage, money, business, network marketing, real estate and especially science (its really sad to me how poorly educated we are about science in the US since many of the political decisions of the day are being made based on poor scientific knowldege).

Global Warming is my personal scientific pet peeve. We have less than 100 years of fairly good scientific data on temperatures, yet we try to extrapolate that data over the life of the planet and think we can predict some disaster. Understanding normal variation is not something people seem able to grasp. Every weather event is treated like a unique event. This only demonstrates to me a foolish lack of perspective!

Getting good data is also of paramont importance when evaluating a new business as well. Now when you are investing $1,000,000 into a business you probably will do some due diligence. However, for businesses like Network Marketing with low entry costs, nearly no one does due diligence. So I found that people asked their “expert” friends about the business and they got information on how prices are too high or the market is saturated or whatever. When I got involved in the Amway business I did not ask one unsuccessful person what they thought of it. I investigated the pricing structure, the quality of the products, the payouts, the franchise “system”, and interviewed people that had made the business work.

Likewise, in the real estate business, I’ve investigated lots of different systems, bought several and evaluated how they work. I only like to talk to successful people about what works. I like real knowledge, not theoretical knowledge about what might work.

Know that doesn’t mean I won’t listen to people that have failed at something. Certainly they can provide valuable insights. However, most people really didn’t fail because they really didn’t try. So 99.9% of their opinions are worthless.

Meanwhile thousands of people listen to Barbara Streisand rant about global warming while flying around in her private jet ruining the atmosphere.

Posted in business, finances, investments, money, Network Marketing, real estate, science | 1 Comment »

Success Will Not Attack You

Posted by Paul on January 7, 2007

I heard the title of this post often at Amway meetings I attended back in the 80’s. I don’t suppose I knew what it meant back then but now I can assign some meanings to it based on years of experience in both Network Marketing and real estate investing.

  • Afraid that being successful will change you

I remember when it occurred to me that I might become very wealthy in Amway. It actually scared me to death! I wondered how I could be responsible for handling millions of dollars and dealing with hundreds of thousands of distributors. I thought that I could not change into the type of person I observed as successful in that business. Now I don’t know what the heck I was thinking. We grow as we accumulate wealth and the changes are gradual. Success wasn’t going to suddenly attack me in the middle of the night and change me into someone I am not. In fact, the changes happen first, then the success follows. Looking back now, I realized how much I personally grew during my years in Amway.

Now some people do fall into lots of money, so I suppose it attacks them and they can’t handle it. This is probably due to our subconscious belief that we are not worthy of the money since we didn’t earn it. If so, then you can turn that success attack around by changing your thinking. Change your thinking to prosperity consciousness.

  • Success takes commitment

I think that the most apropos meaning of this phrase is that you are probably not going to become successful without a real commitment on your part. I’ve blogged elsewhere that I was 99% committed to being successful in Amway. That didn’t cut it. I think real success takes going the entire way. Holding back just a little part of ourselves sabotages our efforts. In my first real estate venture I never really committed at all to success. After the first year I was just going through the motions and didn’t have a plan to succeed nor was I committed to doing everything I could to make the properties profitable. In my current real estate venture I feel 100% committed and have been working like it.

  • Success mean taking responsibility for your failures

When I was in Amway I was able to observe hundred of people in my down line directly. I could see their words and (in)actions. What I mostly saw was people that failed to take responsibility for anything that happened. Blame, excuses, laziness, lack of commitment and failure mentality all permeated everything they said and did. I don’t have any ill feelings towards Amway or anyone involved for my failure to become rich. I lay the blame entirely on myself. People don’t fail in that business because its saturated or the products are too expensive. They fail because they fail to take responsibility to succeed. Likewise, for my first real estate venture. I could blame the WV economy, but in reality, I could have made it work despite the economy. Buffalo’s economy is just as bad as the one I encountered in WV, but I believe I can be successful here because of the same reason.

Success will probably not attack you. You have to attack your goals and dreams as if everything depended on your success.

Posted in money, Network Marketing, real estate | 1 Comment »

Direct Mail in Real Estate

Posted by Paul on January 2, 2007

Well, my New Year has started off with a bang for my real estate venture. In the past I had used Realtors almost exclusively to buy property. For the past 6 weeks I have been direct mailing absentee owners and people entering foreclosure. Every week I have been mailing about 100+ postcards or letters out. At first I got only a few crank calls from people upset that I mailed to them. But in the past 10 days I have received about 11 calls. About 5 of them seem to be really good leads. I’m not sure if it is just a matter of planting seeds that are starting to sprout or the change I made in my letter. All of the calls have come since I changed the letter. I’ve got an amusing picture on the top of the letter (the previous letter has a picture of a check) with a catchy question.

I had never given direct mail much thought, although Dave Whisnant had spoke quite persuasively about it in his course. But now I am dealing with really motivated sellers that basically are handing me their papers and trusting me to solve their problem, and not worried about whether they will get money out of the sale.

So today I am scrambling to get a package together for each of the good leads I have. Each of the properties has a second (or third) that is a weak position and I will try to find a bank that will give me a short sale. It’s easy to get caught up in the emotion of what is going on. I will have to keep myself in check and make sure the financial outlook of each deal I agree to makes financial sense.

What ever the result, this experience is cementing my belief in direct mail. It won’t be the only advertising I do and I will still use Realtors, but I plan to keep it as a main part of my business.

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Real Estate Coaching

Posted by Paul on December 30, 2006

I wrote a few days ago about a motivated seller who is facing foreclosure. I also posted about real estate courses. One course that did not impress me was Don DeRosa. However, when I purchased his package he gave me his cell phone number. I decided to call him about this deal and wasn’t expecting much (my previous attempt at buying coaching did not yield much with Dave Whisnant). So I was quite surprised when Don answered the phone right away. He spent 45 minutes on the phone with me, created a spreadsheet and emailed it to me. He walked me through short sale procedures even though I have not purchased his Short Sale course. All in all, I was very happy with his responsiveness and helpfulness. I would have to recommend him if you can get his cell number.

Don confirmed my belief that this was an excellent candidate for a short sale. There are 3 mortgages on the property and the second is foreclosing. He did not think the third would do anything and would probably take a few pennies on the dollar. So I have been working with the banks and trying to follow his advice.

Meanwhile my wonderful wife returned from China this week and came with a check for $20K for the sale of her garage condo. So now I feel I can go back to hard money lenders and see if I can qualify for a line of credit. 2007 is starting out on an upbeat note and I am excited about reaching my goals.

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Real Estate Courses and Resources

Posted by Paul on December 23, 2006

I’ve spent over $2000 in the past two years on real estate courses. On the one hand I’ve used the information to make 2 profitable real estate investments. On the other hand I feel that these real estate guru’s charge far too much for the quality and content of the courses they offer. One guru who agrees with that view is John T Reed who has read and evaluated many of the guru real estate courses. His view is that the prices the gurus charge is too high and the information should be sold in books under $100. He offers 21 such books at ~$40 each. So in fact his real estate course costs $840! I’ve bought a couple of his books and they are quite good, but narrow in scope, so you almost need to buy all of them to get a complete picture and spend as much as for other courses.

Some of the courses I have purchased and my opinion:

  • Ken Preuss – I purchased an e-book from Ken, so the price was fairly reasonable but there is no audio. The information was OK. He emphasizes lease-purchase and I learned a lot about that concept which I used for my rental property. The technique works well – I’ve got the best tenants I’ve ever had (ten years experience), I got $3500 from them to get in the house and they pay about $150 more than the going rental rate. Ken had the most up-to-date web resources of any of the courses I’ve bought. His course is so focused on lease-purchase that it leaves out a lot of other useful information, so not really complete.
  • Don DeRosa – I’ve purchased two courses from Don ($895 seminar special). The workbooks are useless in my opinion and the two courses have so much common information that I would never recommend purchasing them separately. The spreadsheet he provides is riddled with math errors and I had to write to ask for forms that were supposed to be provided but were not. I don’t think that Don has put enough value in his courses to justify the price. If he combined all 3 of his courses (subject-to, private money, short sales) I might think otherwise, but as is this is the worst of the three. I’m supposed to have one year of consultation with him but I have not used that yet. Maybe that will justify the price.
  • Dave Whisnant – Dave is an attorney turned investor. His course is jam packed with information. He has excellent information on public records and covers every topic I have encountered from repairing your credit (quite good), to marketing (very good insights) and rehab (so-so). I was supposed to get on-line help. I used it once but his advice was not especially insightful. John Reed had some criticism of this course, but I found his comments kind of petty. If you were to purchase one course, I would recommend his (I get no commission and have not been in contact with him for 2 years). His course was less expensive and certainly as insightful as Reeds books.

On-line I use Real Estate Investment articles which are a little vague (these are guru’s writing hoping to get you to buy their course. But there are enough different articles from different investors that you can get 90% of what you need from this web site.

Paying a lot for real estate courses is kind of a pet peeve of mine. On the one hand, I don’t begrudge the gurus from trying to use capitalism from making more money. But, their marketing is so vague that you never know what you are getting until after you spent the money. I’m at the point now that I have lots of experience and knowledge. These guru’s mostly focus on new investors.

One of my goals is to use a tool I’ve come to really like (the wiki) to create a “live” real estate investment course that can be improved by the investment community. I’m sure the guru’s will not like this idea. I’ve tried to create a wiki template to do that RealEstateGuru. At the moment it is only a draft. If you have real estate experience and would like to contribute, please email me. I am only working at this as time allows at the moment, since I am still in the process of developing my business plan and goals.

Posted in real estate | 6 Comments »

Motivated seller and a short sale potential

Posted by Paul on December 22, 2006

I’ve started a direct mail advertising campaign to find motivated sellers for my new real estate venture. Each week I get a list of lis pendens filed (people going into foreclosure). I also use First America real estate software to create mailing lists of absentee owners. In our county there are about 50 to 70 lis pendens filed per week. To date I’ve mailed out about 250 letters and received 3 phone calls (1.2% response rate which is supposed to be a typical range). Today I met with one of the callers. She gave me all her original documents, essentially freezing out any other possible investors. She just wants to get rid of the property and doesn’t care about making any money.

This property is one which may be ideal for a short sale. The owner originally took out a first mortgage and HELOC from the same lender. The HELOC was a 5 year balloon due last June. The lender diddled around about refinancing the HELOC and is now foreclosing against it. Meanwhile three years ago the homeowner took out another mortgage against the property which is in a third position. The payments on the third are up to date, but the third is in a weak position. The total of the three mortgages is close to the actual value of the house. So the third mortgage, in order to save their equity will have to take over the first two loans at the auction or hope someone else does.

I’m hoping to negotiate with the third mortgage and see if they will accept a short sale, in other word, try to pay them 10 cents on the dollar owed them. At any rate, I am in the catbird seat on this deal. The seller has put her complete trust in me and the clock is ticking down on the third mortgagee.

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The Courage to Be Rich

Posted by Paul on December 21, 2006

I was reading an article titled The Courage to Live Consciously by Steve Pavlina and was reminded (again) of the root reason for my current financial state -living too much in my fears.

How would I live if I had no fear at all? Have you ever asked yourself that question? When I was involved with Amway I often asked myself this, but had long forgotten about the question or my answer. Recalling back to the days I used to travel long distances to show the Amway business plan to prospects, I often would be driving home late at night listening to self-improvement tapes and sometimes would catch a glimpse of this awesome lifestyle that I could lead should I succeed – great friends, financial security, wonderful family and spiritually connected. But by the next day, trying to do my job with only 4 hours sleep, I slipped back into negative thoughts about why I would not succeed (fatigue can kill dreams).

Now I’m not totally a wuss. In some areas of my life I have a lot of courage. I relish heights and have no fear of dropping off the side of a mountain, I’ve had 20′ boa constrictors crawl over my back. I love speaking in front of large crowds (I’ve given speeches before 10,000 people) and I have never had a fear of investing money. I don’t really have a fear of failure, but I do have a fear of success. And I have had a very real fear of being rejected by other people in one-on-one situations.

Life shrinks or expands in proportion to one’s courage”.

Anais Nin

The word courage is derived from the Latin “cor” which means heart. Steve Pavlina seems to think that courage is more about mental decisions. However, for battlefield decisions the Marine that falls on a grenade is not making an intellectual decision, but a very real emotional one. He (Steve) thinks that our decisions are not “fight or flight” based because the real danger to most of us is mostly in our mind – not life or death decisions our ancestors (or today’s soldiers) faced.

Steve lists lots of practical advice to overcoming your fears (making list of possible negative aspects of you decision, breaking them down and setting goals to overcome them, becoming more educated, etc.). Maybe this helps some people, but I have tried this logic with only limited success.

So how do I gain the courage to be rich? My only good analogy is when I am at the top of a very steep ski slope and can’t see the trail past the edge of my skis. I simply push forward over the edge and trust in my ability, God and my instincts that I will make it down the slope. I am totally immersed in the moment, not worrying about falling, breaking a leg or anything negative.

I think that business success will take a similar route. When I was in Amway I was 99% committed to my success. I invested heavily in tools, seminars, travel. I would drive anywhere to show the plan to people, but I withheld myself in one critical area out of my comfort zone – I wouldn’t drop off that cliff when I was in the presence of a stranger. I have a colleague I work with who I admire greatly for that quality. For him everyone is a friend whether a CEO or the girl at the drive-through window. In seconds this man establishes rapport with strangers, a trait I envy.

So is becoming rich just about courage? To a large degree it is and a very emotional decision. It is about putting yourself on the line, about immersing yourself 100% into what you are going to achieve and blowing up the bridges that would allow you to retreat. That retreat has for me been too easy ( I make a six figure income at a job). But my job will never allow me to get rich.

“Successful people expect the best, and they generally get it, because
expectations have a way of attracting to us their material equivalent,”

Tom Butler-Bowdon

When I started in real estate the first time 20 years ago, I didn’t have a plan, wasn’t organized and invested based on poor information. But I also failed to commit myself 100% to making it work, so I retreated to my job and let it bail me out. This time I am better organized, have good market data, have a planned exit strategy, know what I want to buy and am not letting emotion drive my purchase or selling decisions. But I still have the opportunity to give up – I’ve got 4 teenagers to care for with associated activities, a wife who wants my time and still have that 8 hours every day to exchange with my employer. I don’t have time to do this ( I could reason).

I’m 53 and I have no hope of retiring before my late sixties based on my financial position. I had not planned to be in this position, but that’s because I never did stick with a plan to do it. So its going to take relentless persistence to succeed. And ultimately, the courage to push myself over the edge.

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Real estate and liquid assets

Posted by Paul on December 20, 2006

One of the banes of new business is being under capitalized. I thought that with my excellent credit score I could convince Brookview Financial to give me a line of credit, but no luck. Even though they claim to loan 100% of project costs and don’t even require payments during the holding period, they want me to have more liquid assets before they will give me a credit line.

I’ve been sending out direct mail pieces to people going through foreclosure and have started to receive calls (about 1.2% response rate). No sales are imminent but now that Brookview has my application on hold, I have less confidence in my ability to close the sales. The sellers I am marketing to need quick closing and I was counting on hard money to have the wherewith all to do that.

At the last seminar I attended Don DeRosa talked about doing “subject to” purchases. His claim was that you could buy houses for “nothing down” by essentially taking over the mortgage of the person who is facing bankruptcy. But, this is not really true. You need cash to bring their payments current, you need to pay closing costs and sometimes need cash for the seller if they have any equity above their loan value.

So I am considering my options about how to increase my liquid assets:

  1. Capital One has offered to increase my installment loan from $14k to 30K. Interest rate will go up 2% and payments up $200/month plus a negative impact on my credit score
  2. Another bank says they will refinance my rental property for up to $40k cash out. I would have to pay off the Capital One loan but my net payments wouldn’t increase. The cost to take out this loan is about $4k and it would take one month to get the funds.
  3. My wife has a garage to her condo in China she is trying to sell. Her ex has promised to buy it but he is not reliable, so I am not sure if I can count on it
  4. Try to re-focus my strategy to “wholesale flipping” of any properties I find.
  5. Start to focus more on getting private money.

In my younger days I often tried the Casey Serin route, trying to get loans on top of loans and over-leveraging my self. I think that I will try patience this time and stay focused on my goals.

 Our need to get instant gratification often creates an urgency to act quickly and make bad decisions and settle for mediocre deals (just like the desperate teenager that settles for a mediocre boy/girl friend).

When we were looking at houses this past winter my wife seemed to get impatient that we didn’t buy for a long time. But in the end we got an excellent deal that continues to increase in value. It’s disappointing to be turned down but not the end of the world. So for now I will resist the urge to rush out and borrow more money and focus on items 3, 4 & 5.

Posted in real estate | 1 Comment »