Thread: Leveraging

I am sure there are many options out there, but I will share with you what I am doing.

Just to give a little background, I am essentially and entrepreneur and have started, bought, and/or sold several businesses over the years. None of them huge, the smallest was about $250k in revenue the largest about $7m in revenue.

During this time of owning businesses, I have been an active investor in mostly RE and stocks. By using my knowledge about business finance and investing, I have started an investment partnership.

I am investing my own money along with several partners. This allows me to leverage OPM while generating a reasonable return for all parties. My benefit comes from management and maintenance fees from the fund, which I reinvest directly into the partnership to increase my personal partnership value.

In 2008, my investments returned a -10%. Not exactly wonderful, but better than the S&P500. In 2009, it was a little over 100% return. I don't anticipate 2010 to be that good, 2010 was a bit of an anomaly.

By leveraging OPM it boosts my returns within the partnership. But it doesn't increase my time commmitment because I would be managing my money anyway.

You can buy a property for CASH in this price range-GOOD CASH-FLOW!

The best leverage out there in terms of money are the currency markets (100:1) and options on the markets like the S&P500 (10:1). However with the "Best leverage" comes the greatest risks.

Originally Posted by Cat Man Du

You can buy a property for CASH in this price range-GOOD CASH-FLOW!

Maybe good cash flow, but not necessarily good cash-on-cash return...

Maybe good cash flow, but not necessarily good cash-on-cash return...

That's exactly right. You'll most likely get 10-12% cash-on-cash if you were to go this route. However, by paying cash you are more likely to get your offer accepted on a property. Here's what I do: pay cash, fix up with cash/credit, get the property rented, AND THEN leverage it with conventional financing. Pull out your cash and do the same thing over, and over, and over, and over....

A 10%-12% ROI on a rental property would make me happy. Where else are you going to get that year after year? Only Madoff could post that kind of consistant return.


On the spec houses I do I get anywhere from a 30%-100% ROI when I sell them. The one closing in March will be a 100% ROI.

A 10%-12% ROI on a rental property would make me happy. Where else are you going to get that year after year? Only Madoff could post that kind of consistant return.

Very true, 10-12% isn't bad but the opportunity cost of tying up that cash is the sticking point for me. Let's say you had $50,000 liquid to invest. You could buy and rehab a single house and receive a decent cash flow from the rent OR you could do as I suggest above and buy several properties, one at a time, and build a nice little rental portfolio.

By the way, doing this with OPM gives you an INFINITE return. Borrow the $50k cash from a friend, buy and fix up the house, rent it out, then take out a mortgage for $52,000. Pay back your friend's loan at a nice interest rate and they'll be begging you to keep borrowing money. Perfect way to build a portfolio and control a bunch of property without tying up a bunch of your own cash.

Originally Posted by Montexan

Very true, 10-12% isn't bad but the opportunity cost of tying up that cash is the sticking point for me. Let's say you had $50,000 liquid to invest. You could buy and rehab a single house and receive a decent cash flow from the rent OR you could do as I suggest above and buy several properties, one at a time, and build a nice little rental portfolio.

By the way, doing this with OPM gives you an INFINITE return. Borrow the $50k cash from a friend, buy and fix up the house, rent it out, then take out a mortgage for $52,000. Pay back your friend's loan at a nice interest rate and they'll be begging you to keep borrowing money. Perfect way to build a portfolio and control a bunch of property without tying up a bunch of your own cash.

exactly my plan B. (this is a deviation to goals I've posted here on this forum)

My initial intentions with a property I bought a couple of weeks ago and another I am buying next week was to flip them for a nice 30% return, cash on cash. (I paid cash) But due to a slower buyers market I am thinking the scenario you described is the avenue I'll pursue...

BUT- the brick wall I am smacking into is the banks are very tough on me. My B&M biz is taboo in this economic climate and I've taken a lot of responsibility out of corp name to keep it alive and into my personal name. Yes, this is a mistake, but I'll save for some other time how I promised 20 people they'll still be able to feed their families....

anyway and more importantly, do you refi with banks? or do you go to different types of lenders? or back to family?

You pretty much summed it up a lot quicker than I ever would have.

Keeping It Simple Stupid works great... you deserve some speed but I've got to spread it around first.

Yes, this is a mistake, but I'll save for some other time how I promised 20 people they'll still be able to feed their families....

Respect.

anyway and more importantly, do you refi with banks? or do you go to different types of lenders? or back to family?

For the most part, I've refi'd with small, portfolio lending banks. I have developed a couple of key relationships with local banks that don't have to follow the "check the box" lending applications of the larger institutions. Recently, they have even slowed me down though. That tells me things are getting really tight because I know for a fact they are very well capitalized and have a low percentage of non-performing loans. I suppose I'd tell some punk kid to take a 6 month breather too after giving him 10 mortgages in a row....I love the real estate game.