I feel stupid for saying this.

[Bozigian]

Ok gang I know here in the real estate section people have been in real estate for quite a long time. Me as an 18 year am still young and have lots to learn including real estate. Now forgive me if i sound stupid for my question.

Suppose (person A) has a large sum of money and wants to invest it in real estate but has no knowledge of it what so ever. And this person wants to give the money to (person B) who is in real estate and decide to buy an apartment complex. Now (person A) wants to get monthly income without doing any of the work or maintenance and (person B) agrees to take care of all the issues with the apartment while both getting part of the monthly income as well.

What would this be called? I mean if (person A) had money to hand over to (person B) who would take care of everything while both get monthly income from the people renting their apartments.

Would that be called a pitch?:huh2:

 

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[DeletedUser394]

What you are describing is called a Joint Venture or JV.

Usually there are one or more "hands-off" investors, and then there are one or more people who actually go out and find the property, buy the property, etc.

http://ezinearticles.com/?Joint-Ventures-In-Real-Estate-Development;-So-How-Do-They-Work?&id=1675

There's nothing stupid about your question

 

[Bozigian]

Hey Ryan Drake what about 'real estate investment trust'

i copied this from another site

REIT stands for real estate investment trust and is sometimes called "real estate stock." Essentially, REITs are corporations that own and manage a portfolio of real estate properties and mortgages. Anyone can buy shares in a publicly traded REIT. They offer the benefits of real estate ownership without the headaches or expense of being a landlord.

do you have experience in REIT? would you recommend this for a beginner?

 

[DeletedUser394]

REITs are managed by professionals. True, anyone can invest in a REIT, and you buy shares (just like stocks).

With a REIT you have no control.

I don't ever plan on investing in REITs, because I value control.

Great website: What Are REITs?

 

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[Darkside]

REITs are managed by professionals. True, anyone can invest in a REIT, and you buy shares (just like stocks).

With a REIT you have no control.

I don't ever plan on investing in REITs, because I value control.

Great website: What Are REITs?

That's the key lesson. If you have control over the process, you know how well you are doing and you can leverage yourself at your own pace. Imagine if you had been invested in one of these REIT's right before the housing bubble collapsed; you'd have lost a considerable amount of wealth. Whereas if you were investing in real estate on your own, you could have still made money even while the housing bubble burst because you could have rented out properties to bide your time while housing prices go back up or even rent out an apartment complex.

 

[Bozigian]

Is their any 'must read' books that you would recommend that I read? And for you guys, is real estate a stressful business? Like having the tenants saying their is something wrong with a part of the house?

Or are these issues left to the property management companies?

 

[Darkside]

Is their any 'must read' books that you would recommend that I read? And for you guys, is real estate a stressful business? Like having the tenants saying their is something wrong with a part of the house?

Or are these issues left to the property management companies?

It depends on how big your operation is. If it's a smaller operation then you will have to deal with most of those types of issues on your own, like hiring plumbers and other contractors to fix things in your tenants houses/apartments. It's cheaper than outsourcing that task. Once you get big enough, like say for instance if you have multiple apartment complexes, then you can hire people to manage them for a salary; they would then deal with all of those issues like collecting payment from tenants, fixing stuff, etc., while you would focus on buying up more properties and managing cash flow.

 

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[andviv]

Every time somebody asks questions like this, I respond like this:

Go work for a Real Estate Company. Go work for a realtor or property management company so you get to see what it all is about and get paid while learning. Do this for a year and you will be a very savvy individual.

To answer your question, you (B) would be soliciting from the investor (A). As long as it is a "private" deal and you know (A) or have been introduced to her by a third party then you are mostly in the clear. Problem is when you advertise for investors. Go to the SEC website, look for 504 (D) and read about that. The definition of Accredited Investor is an important one... google that one as well.

Good luck!

 

[Red]

Hey Bozigian-

Not a stupid questions at all! We all had to learn it for the first time somewhere -and what better place to get quality answers than here?

I whole-heartedly agree with Andviv above. You've got to educate yourself if you want to become successful in this arena. Otherwise, you're simply giving your money over to someone who you hope knows what they're doing (because you can't verify it) -might as well invest your cash in the stock market and let your account manager make all the decisions (and I don't know about you, but that scares the hell outta me).

Andviv also made a good point about knowing who you're working with -personal referral. No googling on this one.

Whereas if you were investing in real estate on your own, you could have still made money even while the housing bubble burst because you could have rented out properties to bide your time while housing prices go back up or even rent out an apartment complex.

There are many private investors who lost their shirts here in the valley because prices dropped so dramatically. The market-rate rents that these homes procured could no longer come close to the monthly mortgages payment owed -even private investing isn't a guarantee of survival.

Bottom line: educate yourself so you can make the informed decisions.

 

[TOLDUSO]

It sounds like person "A" is wanting an easy way to make money by placing way too much confidence in person "B."

Person "A" has the right idea of having passive income but is going to have to get their hands dirty in the process of setting it up. Using person "B" may very well be a viable option, but only in the capacity of bringing them onboard to learn from.

Going out on a limb and assuming person "B" is trustworthy (maybe even a family member) let's say something happens to person "B" that leaves them unable to work the project anymore or gone altogether. Person "A" is going to be up shit creek trying to learn and cram everything overnight. It's best just learn from the start and to set things up and do them yourself. One should only bring in help once they have full control and are established in the venture. That is the only time it is okay and safe to relinquish any control at all.

 

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[andviv]

It sounds like person "A" is wanting an easy way to make money by placing way too much confidence in person "B."

Person "A" has the right idea of having passive income but is going to have to get their hands dirty in the process of setting it up. Using person "B" may very well be a viable option, but only in the capacity of bringing them onboard to learn from.

Going out on a limb and assuming person "B" is trustworthy (maybe even a family member) let's say something happens to person "B" that leaves them unable to work the project anymore or gone altogether. Person "A" is going to be up shit creek trying to learn and cram everything overnight. It's best just learn from the start and to set things up and do them yourself. One should only bring in help once they have full control and are established in the venture. That is the only time it is okay and safe to relinquish any control at all.

I have to strongly disagree with this statement.

If this were true, people that have cash (think of MJ, or RussH when he retires, or any other entrepreneur who has cash out) could only make money by working hard again.

This is going against the passive income goal.

Any deal has many components. Know-how, experience, cash, time, opportunity, work are needed in order to make a deal/investment successful.

A would bring the cash.
B would bring the know-how, time and work to make it happen.

No deal can work without these ingredients.

It is about synergy.

It must be this virus that has me down, but I can't explain all that is wrong with this statement.... where is bflbob when you need him?

 

[Bozigian]

Alright so if a real estate investor bought a small home and tenants soon move in.
You explain to them the rent payment each month, and then if their are any maintenance issues or their is something wrong with the house, then they call you. And you call maybe the plumbers, depending on the situation and all that stuff.

Are you going to have to be aggressive as well when dealing in real estate like if the tenants were behind on payments for quite a while?

For you guys who have tenants, does maintaining a house that the tenants live in bother you when they call for a repair or damage in the home?

 

[andviv]

For you guys who have tenants, does maintaining a house that the tenants live in bother you when they call for a repair or damage in the home?

I did. Big time. I hated it.

I was only successful when I had a great PM. When I lost the great PM my properties crumbled.

Now I only look at RE from a multi-units perspective, with a professional Property Management Company in place. I like passive, but that is me.

There are quite a few good landlords here, check if Runum or BFLBob can give you some input, they are masters in this... Master Bob, Master Greg, this one is yours...

 

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[Runum]

I'm not sure what questions I can answer here that will help. I can describe what works for me. I rent out SFH's to mid to low income people. This is not fastlane due to the lack of multiplier but it does cashflow for me.

We buy units that need some repair and do the work ourselves. We are looking at mostly cosmetic work needed, no structural damage, no foundation problems. We clean them up and paint them. All my units have the same vinyl tile, same paint, minimal trim, no extra lights, fans, fixtures, or appliances.

We stock the units with new, low-end appliances(oven, fridge, water heater). We make sure all the systems on the house are functional and not marginal. We put new guts in the toilets and seals and seats on the plumbing fixtures. Make sure all the plumbing fixtures have shut off valves(in case of pressure leaks).

The purpose is to do all the prep work before the tenant moves in so that you won't get late night calls. If they severely damage the unit they may as well move out. I won't be a happy boy. I have had two tenants knock holes in the walls, one time was a kid throwing a toy and the other time was a recliner broke. The tenants repaired the damage both times at their expense.

I have an occasional maintenance problem with a tenant in the house. I try to coordinate the repairs while they are at work so there is no time conflict. I have had good luck with this.

You will get the rare call that repairs have to be done now. It is a hassle when the kids are trying to see what's going on while you are trying to work. I am a school teacher so the kids don't bother me but they do bother my workers sometimes. I just have to ask the parents to clear the kids out of the way.

At first you are going to do a lot of work yourself unless you have some super profitable deals. I currently have 10 rental units and hire more work out now than I have in the past.

One huge lesson I learned...make sure your numbers make real good sense, even in a down market. I bought a place with narrow cashflow margins. I knew it going in but I had to have the deal. Then the property was reassessed and the property taxes doubled. Then the area suffered job losses and the vacancy rates went up to 16%. This forced rents down. Now my cash cow became an alligator. We are still wrestling with that albatross today. 2010 was great though, we had an overall vacancy rate about 6%!

I try to aim for properties that can get my money out in 24 months or less. I am also wanting a MINIMUM of $300 CF profit per unit and really wanting $400 profit/unit. Starting out, I couldn't find those deals. It does take time.

I have had to get tough with non payers. There are many different tactics to use, some legal and some marginal. In my experience, if they get more than a few weeks behind you might as well get ready to get them out and a new tenant in. Once they get behind they do not have any method of getting caught up. If you let it go on for 2-3 months then it's either because of your local laws or you are asking for trouble. I cannot afford to have deadbeats in my rentals. And you will hear every excuse under the sun.

The first deal was our worst and it made us the most nervous. Now it's no big deal. Crap happens, it happens on my job too. You either deal with it, because you signed up for it, or you bail. ATW or another member around here used to say that you have to grow bigger than your problems. That certainly applies here.

This works for me. It is not the only way to profit in rental properties, it is one way. We provide safe, clean housing for those that need it. We are looking at different ways to take this to a higher level, lot's more units, bigger multiplier.

Good luck.

 

[bflbob]

I own a couple of properties -- a 4-unit and a 5-unit. I hated running the properties, and after much thought, I hired a property manager.

Now I just hate owning property.

It is sort of a joint venture. I give the PM money each month, and he spends it. I originally thought it would be the other way around. A "cash flow property", I foolishly assumed, would feed cash INTO my pocket. WRONG!

As for REITs, they aren't useless. The company I work for just sold a mess of our Senior Living properties to one, freeing up a bunch of cash. We now rent them back, and still operate them as before. We just don't have any debt.

 

[Bozigian]

Alright bflbob, I see how much of a hassle real estate can be. And it seems that being in real estate does require your time especially if you are starting out, and some newbie mistakes can happen.

@bflbob---do you make good passive income from this?

And going back to REIT, Ryan Drake said that they have no control.

The definition of REIT:
REITs are corporations that own and manage a portfolio of real estate properties and mortgages. Anyone can buy shares in a publicly traded REIT. They offer the benefits of real estate ownership without the headaches or expense of being a landlord.

I was looking more into REIT since it says that they offer the benefits of real estate ownership without the headaches or expense of being a landlord.

So say if someone was to invest in REIT, assuming this person knows what they are doing. How would they earn income? and is it even passive? Would they recieve profit every month from REITs? or recieve it like 6 months?

 

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[Runum]

A REIT is like a mutual fund for real estate. Again, no control. That's a big point in calling yourself a real estate investor. People holding REITs took huge hits in 2008 just like all the other mutual funds. No stop losses. Too much risk, not enough reward.

 

[bflbob]

@bflbob---do you make good passive income from this?

Hell, no! I'm getting killed. We're at a 34% net vacancy rate through November. But at least it's costing us more than I expected ;-)

I did own shares in a REIT before. I made out OK, but that was back when RE was flying high.

So say if someone was to invest in REIT, assuming this person knows what they are doing. How would they earn income? and is it even passive? Would they recieve profit every month from REITs? or recieve it like 6 months?

There is no "this person". These companies are HUGE, moving millions of dollars into properties. They don't usually buy a house, or a building, or a complex. They tend to buy neighborhoods. The last time I saw one buy in our area, they bought about 500 units in a dozen or two properties.

You aren't guaranteed any profit, nor are they. But in the normal run of business, they do make profits. Usually. You get a share of earnings, as do the other 2,657,274 investors. Just don't expect millions. They only pay small returns normally.

The good news is that they are totally passive for you. The REIT does all the work. You just own part of the company.

Similar to stock shares, you tend to make your profit or loss when you sell your shares, not while you hold them.

 

[DeletedUser394]

Forget real estate. Why put up so much capital for $200/month cashflow?

You're so young. Short penny stocks and trade currency at 400:1 leverage and make two million dollars while you're still in school. (Timothy Sykes style)

$1000 cash will get you $400,000 in currency. (Not recommended but you can theoretically do it.)

Or start a website/eBiz. Small initial investment, unlimited return. (Facebook is worth $50 billion)

Then when you have massive amounts of money floating around, invest in real estate.

I'm exaggerating, but seriously why lock up your money in RE? Take bigger risks while you're still young, so that when you're looking at slowing down you'll have plenty of investment capital for real estate.

 

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[Bozigian]

Yes, I am a broke college student. the only income that I make is from internet marketing which I actually do like to do because I do it on the comfort of my home. I am looking for ways to invest some of the money that I have.

I have been looking at penny stocks for a while but even though they are cheaper, i hear that they are more risky.

 

[DeletedUser394]

Penny stocks are awesome. You can own 2 million shares of a company for $200 xD

I suggest you read Timothy Sykes book (it's on amazon).

He started with only $10,000 and made $2,000,000 in two years by shorting penny stocks. Then he started a hedge fund.

There's some great free information on his website.

Short Selling Penny Stocks

 

[TOLDUSO]

I have to strongly disagree with this statement.

If this were true, people that have cash (think of MJ, or RussH when he retires, or any other entrepreneur who has cash out) could only make money by working hard again.

This is going against the passive income goal.

Any deal has many components. Know-how, experience, cash, time, opportunity, work are needed in order to make a deal/investment successful.

A would bring the cash.
B would bring the know-how, time and work to make it happen.

No deal can work without these ingredients.

It is about synergy.

It must be this virus that has me down, but I can't explain all that is wrong with this statement.... where is bflbob when you need him?

I'm not going to defend myself, but you have to have some sort of clue what is going on with what you are investing your money in. You can't just say "Oh, yeah, here you go. Here is some money. Go make me some more with it." Personally I like to have my hands in what is going on at every level, otherwise shit never gets done right. People get lazy and very few people can be trusted to start with.

You mentioned people "with money" that can maybe afford to throw a little cash at things like this, but for small guys like the majority here, they need to seriously get involved and not just throw money at something.

Even someone with no knowledge of the stock market doesn't just call some stock broker up and say "Here you go, Joe. Make me some money." I monitor every investment I have and also speak with the broker as to why or why not we should go ahead with something or pull back.

I own 2 duplexes within 30 minutes of where I live. I don't pay a property manager to do anything. I spend less than 10 minutes a month with each tenant, and that is typically when I collect rent. And of that, I'd say that 9 of the 10 minutes is spent shooting the shit with them afterwards. If something small breaks (plumbing, etc) I take care of it myself. Why pay a plumber $75 to come out when I can take 30 minutes of my day or less and fix the problem for $4? If it's something I can't fix, I call someone who knows how to do it. I have a wife and 3 children yet still manage to be able to pick up the phone rather than pay some scum realtor/manager to call for me. The only time I would ever consider paying a manager is if I didn't live in the same area. Obviously, with an apartment complex, one would need hired help, but I would still be 100% sure of what was going on at all times. Owning property can be extremely passive if you are willing to put in a little work. Both of my duplexes were remodeled and tiled by yours truly. Yeah, it took a lot of my evenings and early mornings and weekends, but I was getting my income "passively" much sooner than if I had just thrown some money at people and said "fix it and rent it." The $20,000 and elbow grease I put into them would yet to have yielded profit if I had paid for everything to be done.

So yes. Your obvious recipe of 1 part cash to 1 part knowledge works to an extent that one can synergize and be the money half while someone else does the brute, but it's not that easy and 9 times out of 10 ends badly. I said nothing of having to "work hard" on every new venture someone starts, but any investment that someone just throws money at expecting an easy return is probably about as good an idea as a left handed football. Nothing comes easy and a guy has to be an idiot to think he can make long term income on something he is unwilling to at least learn the ropes of at first.

 

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[Bozigian]

Forgive me and correct me if I am wrong master Ryan Drake but arent penny stocks supposed to be for long term investments just like regular stocks?

 

[DeletedUser394]

Master Drake? xD

No dude, you can do anything with any stocks. Not all regular stocks are held as long term investments, plenty of people hold stocks for a day, a week, a month, or even a minute. I'm going to be starting to day trade penny stocks.

 

[bflbob]

Forget real estate. Why put up so much capital for $200/month cashflow?

Ah...that may be true now. But when I started, I got 115% financing on my first property (a 5-unit). That was an 80% mortgage and a 35% line-of-credit. Back then, the place did cashflow.

Then a tenant committed suicide in one of the places. That took a bit to clean up. The next tenant trashed the place. The next one didn't pay after a couple months. Etc. Then the roof leaked and the ceiling fell in -- while it was vacant. So we remodeled, and the next tenant fell onto hard times. The roof needed more than patching, and the exterior needed painting.

No more cash flow. Well, no more cash flow in our favor.

My second property, a 4 unit, I bought for no money down. The bank extended my line-of-credit, and I bought it for all cash.

So, all said and done, I got in excess of $205k in financing to buy $155k in buildings. Better than no money down.

They cash flow great on paper. Just not in real life.

I've increased rents. A lot. But not enough to cover all the costs.

I'll agree that the PM is eating me alive. But the PM is keeping it passive. Lose the PM, and I'm there painting, shoveling, mowing and showing the apartments every few days. Not so passive, now.

Unfortunately, that's where I'm headed. Probably right after the B&P.

I just dread it when the interest rates start to climb. $205k at 20% interest is a big nut to cover.

 

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[Runum]

Yeah, a lot of deals made sense 4 years ago that are killers today. I feel very fortunate to be fully rented and cashflowing in today's real estate environment. A lot of my buds are having a tough time.

Ryan, you are young. What makes sense today will not work tomorrow. I am still learning that. Problem is, with some investments, it's tougher getting out than getting in. I don't know enough about penny sticks, hedge funds, and futures to advise anyone. I will say this, all of this investing stuff is easy on paper. Not so easy in application. I wish you well.

 

[Bozigian]

@ryandrake. are you really 18?

 

[DeletedUser394]

@ryandrake. are you really 18?

Yep, same age as you, why?

 

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[DeletedUser394]

Yeah, a lot of deals made sense 4 years ago that are killers today. I feel very fortunate to be fully rented and cashflowing in today's real estate environment. A lot of my buds are having a tough time.

Ryan, you are young. What makes sense today will not work tomorrow. I am still learning that. Problem is, with some investments, it's tougher getting out than getting in. I don't know enough about penny sticks, hedge funds, and futures to advise anyone. I will say this, all of this investing stuff is easy on paper. Not so easy in application. I wish you well.

I totally agree. Theory and Practice/Execution are completely different beasts.

I've been studying paper assets and technical systems for a few months now, as well as networking within the industry (my eventual intent is to manage my own hedge fund).

Once I'm comfortable I'll be entering the markets (for now I'm working on Ecommerce).

 

[Bozigian]

@RyanDrake I never expected you were 18 because you talked like you had experience with real estate or is that blfbob. And plus that picture of the horse and the car on your default gives the first impression that you are a man. then i looked at age and it said 18 and i was like 'oh it must be a mistake with his profile'
but yes i have been looking at an ecommerce store. but im doing affiliate marketing for now.

you should check out warriors forum. just type it in google.