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REAL ESTATE 100% Return, $1mm > $3mm: 2 years

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MJ DeMarco

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1) Create an LLC Partnership / Investment group - each member puts up $$ equal to $200K. So if there are 20 members, each would front $10K.

1) Call a Bank that is overloaded with REO's.

2) Make an offer on a "portfolio" of their REO's. For example, you find that 5 of Bank X's properties have a total offering value of $2 million. You offer the bank $1 million for all 5.

3) Rent for 2 years -- rent pays loan servicing, worse case, capital calls are done to cover shortfalls.

4) Sell in 2 years after RE recovery. I estimate the properties will be worth $3m.

Total return 100% per year.

This scenario exists due to supply/demand imbalances in the RE market. I hear that these types of deals are happening behind the scenes and banks are more forgiving if you take a portfolio off their hands. This is something I am considering minus all the members in the LLC and minus the book.

When everyone is selling ... buy!
 

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Sid23

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Where were you thinking? Phoenix area?
 
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MJ DeMarco

MJ DeMarco

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Yea, definitely Phoenix .... $1m in the Bay Area would buy a garden shed. :smxB:
 

6.0_bull

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I got a better twist on that idea..OPM

1-Form your LLC with 4 members with great credit that can raise one million each in corporate credit lines witch is not hard.If you know the right contacts

2-Now you have 4 million to approach the bank and lets say you are lucky enough to buy 4 million worth of properties at 60 cents on the dollar one of there REO portfolios as you said MJ

3-Turn around and refinance those properties at full value, pull out your initial investment and your equity on top out.

4-Use some of that equity for holding costs ,interest payments, repairs etc , rent out properties , I would hold about 5 years cause i think a few extra years would bring higher values and a longer period to get out of this RE recession.

5-take that money and buy more places *********
 
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MJ DeMarco

MJ DeMarco

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I love it! Speed+
 

reipro

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You are exactly right! That is what we do!
 

Sid23

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Jill, gotcha.

This is MJ's baby so let's wait and see what develops. But no question this is a good idea.
 

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imirza

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Wow. This is kind of funny because I am currently doing what MJ suggested right here in Phoenix (without any partners though). And you can get 100% financing and cash on top of that . So you do not need any of your own money though it would help to have a line of credit or other money as Proof of Funds, to initially get the process started cos, banks need to make sure you are good for the deal.


MJ do you have any good contacts within the bank or any REO lists ? If you need any lists or contacts let me know. I've been planning for this scenario the last 8 months and have put together some good contacts.

About a business line of credit for $1million, I am working on that route but it is pretty challenging unless you have a FICO of over 720. An LOC of $250k is doable under a seasoned corp. Also becareful of who you are dealing with since you have these frauds that try to take money upfront and don't deliver the goods.

The best deals are found in bigger packages. Say you look at $20 million of property and offer $10 million , that is a more likely scenario than offering $1 million for $2 million of property. Banks wants to sell in bulk and give bigger discounts.
 
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Adam

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I got a better twist on that idea..OPM

6.0 is on the right track. Keep in mind that you can always flip your REO packages and make a ton of short-term cash. We have seen buyers own packages for less than 8 hours. If you are buying as rentals, there are a lot of costs involved and REO could kill someone that doesn't have the underwriting procedures in place. Also, the small, geographic specific packages are tough to get ahold of. But great idea nonetheless, I am seeing a lot of people make a TON of money on REO right now.
 

Bilgefisher

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You have my attention.
 

kurtyordy

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It looks like a lot of people are trying to ride the MJ train.

Forgive me if I am reading this wrong, but to those who are chiming I am in, or I am interested, I do not think this was an offer but an action idea. Mj stated he would be doing this minus the LLC members.

My challenge would be, instead of looking for the MJ train to ride on, create your own. Put together your own team, steer your own ship, and take action. Even if you cannot do it at the volume that MJ speaks because of experience, funding, knowledge, contact, or whatever, then do the deal the can fit you where you are at.

The next 12 months will be prime buying opps, take action today, do not "wait and see what develops." Start looking for funds, start looking for partners, start contacting banks, start, start, start.

Slowlaners wait and see, fastlaners take action!
 

imirza

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I had suggested buying bank owned REO at pennies on the Dollar back in September.

http://www.thefastlanetomillions.com/showthread.php?p=8164#post8164


$3,000 do $1 million in 15 months. Challenging but certainly not beyond the realm of possibility.

Acquire an REO package from a bank. Make a bulk purchase of SFRs for 50-60 cents on the Dollar. Sell it for 60-70 cents in individual pieces. eg. the bank is offering $20 million of real estate for $11-12 million. Buy and sell individual pieces for $13-14 million. Things like this are being done on a regular basis in todays market. It pays to think BIG. The notion of buying a below market value property and flipping it for $20k profit is thinking too small.
So if anyone is suggesting that I am jumping on someones bandwagon, let it be known that I have had this idea for quite a while and have already taken action such as arranging financing for such a deal - there are some lenders who specialize in financing REO packages, contacting asset managers and third parties who can facilitate such a deal and I have also laid out exit strategies in conjuction with third parties.

On paper acquiring bulk REOs from a bank at way below market value sounds easy but in reality , a number of steps need to be taken prior to closing such a purchase - atleast if you plan on making money. There will be plenty of investors who will purchase these REO packages without doing much homework and they will eventually be forced to sell at a huge loss. I don't plan on being that person. :smxB:
 

kurtyordy

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imerza- not suggesting about you at all, clearly from your previous post and this last one, you are taking action.
 

reipro

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Getting the money is not a problem you can ask most of the people on the board that are also doing big deals. If the deal is right the money will happen. Borrowing 1MM is like borrowing 1K it just has more zero's the paper work is all the same.

Most of the time bank like loaning bigger amounts they do not have to do it as often then since like I said all of the paper work is the same.

Maybe on our next call we need to talk about how to get financing for deals???:icon_super:
 
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MJ DeMarco

MJ DeMarco

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It looks like a lot of people are trying to ride the MJ train.

Forgive me if I am reading this wrong, but to those who are chiming I am in, or I am interested, I do not think this was an offer but an action idea. Mj stated he would be doing this minus the LLC members.

My challenge would be, instead of looking for the MJ train to ride on, create your own. Put together your own team, steer your own ship, and take action. Even if you cannot do it at the volume that MJ speaks because of experience, funding, knowledge, contact, or whatever, then do the deal the can fit you where you are at.

The next 12 months will be prime buying opps, take action today, do not "wait and see what develops." Start looking for funds, start looking for partners, start contacting banks, start, start, start.

Slowlaners wait and see, fastlaners take action!
Yes, I was just tossing this out there as an opportunity. These deals are going on in my neighborhood and I am not officially forming an LLC to do this. What I am saying is this: These are opportunities that will not exist in 18-24 months. If I was looking to run a short-term deal, it would be this -- now I am fighting an internal battle to keep myself "on focus".

I had suggested buying bank owned REO at pennies on the Dollar back in September.

http://www.thefastlanetomillions.com/showthread.php?p=8164#post8164


So if anyone is suggesting that I am jumping on someones bandwagon, let it be known that I have had this idea for quite a while and have already taken action such as arranging financing for such a deal - there are some lenders who specialize in financing REO packages, contacting asset managers and third parties who can facilitate such a deal and I have also laid out exit strategies in conjuction with third parties.

On paper acquiring bulk REOs from a bank at way below market value sounds easy but in reality , a number of steps need to be taken prior to closing such a purchase - atleast if you plan on making money. There will be plenty of investors who will purchase these REO packages without doing much homework and they will eventually be forced to sell at a huge loss. I don't plan on being that person. :smxB:

I'm sorry I did not remember your earlier post -- since you are actively doing this, perhaps you can go into some more details on your deal process? The bank? The financing? The exit strategy? My original post outlined the steps -- of course, each step in itself contains a litany of more steps.
 

hakrjak

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The one problem I see with this scenario is that you are assuming real estate values are going to hold their values or increase over the next few years. Also you aren't including a budget for repairs and maint, which can be huge on some of these foreclosure properties. Atleast $10k sometimes just to make them rentable (Kinda hard to rent when the previous owner stole all the appliances and cabinets before abandoning the home! LOL)

Other than that though, it's a good plan -- and it's pretty much exactly how I have built wealth for the past few years -- just on a smaller level (1 at a time at about 70% LTV. I buy & rent for a couple years, then fully fix & flip)

Cheers,

- Hakrjak
 

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Rawr

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I would definitely like to learn how to get financing and what the prerequisites are.
 

imirza

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I'm sorry I did not remember your earlier post -- since you are actively doing this, perhaps you can go into some more details on your deal process? The bank? The financing? The exit strategy? My original post outlined the steps -- of course, each step in itself contains a litany of more steps.
Information on REOs is available on most bank websites. I have made contacts within quite a few banks. Some of the local banks allow me to come in and check their list of REOs and see if there is anything I like. With prices continuing to drop in Phoenix I am taking my time.

As far as financing goes I have a number of lenders who are willing to finance an REO package. I'd be able to get cash out up to 80% of LTV after the deal closes.

The exit strategy is to sell or rent. If you can actually buy at 50 cents on the dollar then you will probably have no problem selling for 70 to 80 cents. Renting is an option provided it covers the payments. The goal is to get as much cash out so you can go pursue larger deals.

The steps I have described above are extremely basic and there are a lot of other items involved. I have not gone into excruciating detail since I don't feel comfortable providing the intricate parts of my plan on a public forum. I hope you understand.
 

biophase

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SteveO did a smaller investment in October (which I am a part of) that had very similar numbers. He raised $1.1M to purchase a 125 unit building in Houston. The purchase price was $4.8M and its projected value in 2 years is $7.4M. This is a value-added, forced-appreciation play.

So basically, it is $1mm > $2.6mm: 2 years (not quite $3mm but still very fast lane)

In fact, SteveO is doing a much larger 2nd deal (which I am a part of too) right now. I was going to post the deal on my blog but my friend Shaun beat me to it. He wrote such a good summary on his blog post that I'm just gonna link my post to his.:rofl:

http://shaunsre.blogspot.com/2008/01/my-first-investment-in-multi-unit.html

This deal has one more zero first one. It's pretty scary once the numbers get into 8 figures for me. But basically its the same premise, its a $12.4M, 324 unit building. He is raising $2,100,000 for the down payment. It's a pretty nice looking complex and it actually cashflows with 20% down! That's hard to find these days.
 

andviv

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bio, Shaun's post has a lot of details, you are right, he explained it very well. I'm glad to see Shaun making the jump to multis as well. I've followed his blog for some time and I like his comments. And you are right, the numbers are quite similar to what is proposed here.
 

hakrjak

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Good stuff Bio... I'm interested in learning more about how you guys "Force" appreciation on these commercial properties. I guess it still all comes down to finding the deals, because if you don't buy them cheap enough, or with enough management problems -- You really can't force much.

That's my #1 problem keeping me out of commercial. Everything here is at 80-100% occupancy, and the owners all want top dollar.

Cheers,

- Hakrjak
 

SteveO

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That's my #1 problem keeping me out of commercial. Everything here is at 80-100% occupancy, and the owners all want top dollar.
... and that is what is going to keep you out of commercial. Top dollar means something different to me. It is not what it calculates to now, more it is what it will calculate to when I am finished.
 

andviv

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Bump...

Look at what I found...

I hope somebody actually did this and can talk about it...
 

CommonCents

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Here is the game to play. It pays to be a billionaire and connected to wall st elite. I'm looking into this on a smaller scale with a couple guys in private equity.

YouTube - Indymac Boys Get Sweetheart Deal
 

fredtech1

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If anybody needs their fixer-upper fixed up in Nassau or Suffolk county NY let me know. I can do it.

Let me get this straight. You go and find portfolios from one bank if you like them you go to another bank to get financing to buy it at a bulk discount?

Do you present the bank (you're borrowing from) with a business plan and some of your own down payment? I'm guessing the bank wont give you the financing unless you got skin in the game and a good looking tax return.

BTW, Hello Everybody!!!
 

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