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My plan feels slowlane

Bilgefisher

Bronze Contributor
Read Millionaire Fastlane
Aug 29, 2007
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Aurora, Co
I could use some critique on my plan. I feel like I am looking at it all wrong.

First off my ultimate goal is to get into multiplexes. Here's the plan how: Sorry if the who/what/when/where/how setup is strange, but it works for me.

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First step:
What? Purchase my own home

Why? Provide enough equity to finance my first multiplex.

How? -Purchase a foreclosure or bank REO with at least 30k-50k equity. I will be working with some previous investors and can fairly easily find one with 30k equity.

-Start by building my credit for a better 30 year fixed mortgage rate. (still researching my best loan options.)

-1-2 credit cards. Pay only certain bills with them and pay them off every month. Look at building credit lines as well. (My current credit is 720, and I am still clearing some identity theft issues, but have most taken care of)

- Pull out a small loan. $2000 or less.
- Get more tips from creditboards.com
- Talk to a broker asap and start working on a good loan deal. Find out what I need to do to improve the interest rates. Interest rates as low as 5% right now. I also have VA loan options.

- Save up during the 6 months for possible money down. Look into ways to reduce the amount required for a down payment.
-Read Robert Allen “Nothing down for the 2000’s.
- ?

When? 6 months. Aug 08. Purchase when my apartment lease is up or slightly before. Begin looking at the 2-4 month point. Start talking to a broker now.
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What? Purchase 8-15 plex. ~$400,000-$800,000. To finance midsize apartments.

Why? Provide enough equity to get into midsize apartment.

How? - Locate an area poised for growth based on Volluci’s principles.
-Contact apartment broker
-10% down, 10% seller carry back. $40k-$80k down.
-2-3 Investors
-Berges principles on improving properties

When? 9 months to 15 months. October 08-April 09


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Is this plan slow lane thinking? I feel like I am missing some options here. Heck this plan doesn't even feel well thought out even though its a rough draft. I currently have 9k to invest and hope to have around 40k after my house purchase. I beleive it takes 3 months before you can tap into the equity on your house. Some of the equity I pull will build a cushion to pay its self. I will be able to afford both, but it does give me a holding tank.

I plan to use a combination of Vollucci and Berges principles. First locate an the area (lots of research ahead of me, but I am currently tapping into references recommended).

Finally I am looking in tenant in common for my first apartment. I haven't the foggiest clue how to even find folks interested in TIC purchases since you can't advertise them.

Ive kinda run into a mental brick wall here. For those curious, yes I am still flipping houses for cash, but that is limited at best. Apartments have been my long term goal all along.
 

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Andrew

Contributor
Aug 8, 2007
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I don't know a damn thing about real estate, but best case scenario, how long is it going to take you to have a mid six figure income and at least a million dollars liquid?
 

hakrjak

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Read Millionaire Fastlane
Sep 15, 2007
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Colorado Springs
This plan reminds me of my own a bit... I'm at that stage where I'm trying to transition from SFR's into commercial, and.....

A lot of people in the commercial real estate business have steered me away from smaller apartment complexes like that. I keep hearing a reverberating message of, "You don't want to be involved in anything less than 100 units"...

I've gone into due dilligence on 8-25 unit plexes about 12 times over the past 2 years, and I've yet to find one that will cashflow well with 10% down. They seem to be really tight on profit margin (Once you cost them out, and come to the realization that the current owner is lying through his teeth every time on how much money the place brings in), even here in Colorado Springs where the SFR's cashflow easily -- I've never found a deal worth doing on a smaller apartment complex.

Better luck to you... Just relaying my experience, trying to go down the same road. Making that jump into commercial has been tough for some of my friends as well, and the way they ended up getting in mostly has seemed to be investing money in $100-200k chunks into other people's projects. People with experience, who are working in the 100+ unit range, where the returns are better and more secure.

- Hakrjak
 

JScott

Legendary Contributor
EPIC CONTRIBUTOR
FASTLANE INSIDER
Speedway Pass
Aug 24, 2007
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A lot of people in the commercial real estate business have steered me away from smaller apartment complexes like that. I keep hearing a reverberating message of, "You don't want to be involved in anything less than 100 units"...

I've gone into due dilligence on 8-25 unit plexes about 12 times over the past 2 years, and I've yet to find one that will cashflow well with 10% down. They seem to be really tight on profit margin (Once you cost them out, and come to the realization that the current owner is lying through his teeth every time on how much money the place brings in), even here in Colorado Springs where the SFR's cashflow easily -- I've never found a deal worth doing on a smaller apartment complex.

Better luck to you... Just relaying my experience, trying to go down the same road. Making that jump into commercial has been tough for some of my friends as well, and the way they ended up getting in mostly has seemed to be investing money in $100-200k chunks into other people's projects. People with experience, who are working in the 100+ unit range, where the returns are better and more secure.
Keep in mind that every market is going to be different, and 15 unit properties in one area of the country may not cashflow while in another area of the country may cashflow very well.

The benefit to larger properties is that you can afford to invest outside of your "backyard" and the properties still throw off enough cash to afford professional management, so you don't need to be in the same area as the property.
 
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Bilgefisher

Bilgefisher

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Read Millionaire Fastlane
Aug 29, 2007
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Aurora, Co
Thanks for the input. I'm sure it won't be easy, but the more I read about multi's the more I want to head in that direction.

I am curious, do you think buying a house just for the equity is a bad choice here? Am I missing some options?
 

AroundTheWorld

Be in the Moment
Speedway Pass
Jul 24, 2007
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Bilge - buying a home is EXACTLY how we got our start. (This House)

It can be a GREAT way to get going.

I also highly, highly, highly recommend working with a realtor that is an exchangor. I know there are a few good ones in Colorado. Here is a post about Exchangors.

It can feel a little "slow lane" at first - but REI takes a little time to get going. Once it does, then the growth seems to really take off - it is the "getting started' part. During all that time when you are saving for the house and then waiting for the refi - you don't have to be just "waiting." You can be working on...

Developing Contacts - for your JV's in the future
Doing some more deals - you did that successfully recently, right? Are there plans for more?


And... can you get a VA loan?
 

AroundTheWorld

Be in the Moment
Speedway Pass
Jul 24, 2007
2,909
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Here is a fun little tool to build even more equity into a house purchase. I have not ever used this, but I know people that have, and I know exchangors that have successfully used this approach with many clients.

Go to a local RV dealer. Apparently, after a certain amount of time, the RV on the lot begins to "cost them" money - and it is better to get rid of the RV, even if it is at cost. Let the dealer know you can take those duds off their hands - at cost, of course.

Now - you can use the RV as a down payment on a house (at value). Instant built in equity. There are obviously challenges with this - but they are easily overcome if you have a realtor that knows how to do this - - how to present the offer, etc. (read: exchangor)
 
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Bilgefisher

Bilgefisher

Bronze Contributor
Read Millionaire Fastlane
Aug 29, 2007
1,849
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Aurora, Co
Yep, I can use a VA loan, and will be looking in that direction. Thanks for the post, I just feel like I was missing some options, but I gotta start somewhere.
 

andviv

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Jul 27, 2007
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about your plan....
first step:
what is the penalty for moving from your apartment before the lease expires?
It probably is one month of rent. Is that enough to not move forward with your plan? is $1K enough to delay the search for six months?
Also, nothing wrong with "buying" equity. But please don't plan lightly about the possibility of "cashing out" that equity given the current conditions with lenders. Exchanging that equity though sounds way better, but you do need an expert for this.

about the second step:
You can't "advertise" for it, but you can talk about what you are doing. Vollucci does it by presenting his theory about investment. People come to him after that.
In this forum only I know of at least 3 others that are looking into doing the same.
Read the thread about Legal Ways To Offer/Sell Securities w/o Registering With the SEC, a lot of good tips there about this same topic.
 
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Bilgefisher

Bilgefisher

Bronze Contributor
Read Millionaire Fastlane
Aug 29, 2007
1,849
282
73
Aurora, Co
about your plan....
first step:
what is the penalty for moving from your apartment before the lease expires?
It probably is one month of rent. Is that enough to not move forward with your plan? is $1K enough to delay the search for six months?
Also, nothing wrong with "buying" equity. But please don't plan lightly about the possibility of "cashing out" that equity given the current conditions with lenders. Exchanging that equity though sounds way better, but you do need an expert for this.
Andviv and ATW thank you very much for the info. I never even knew exchangers existed. I'm trying to wrap my brain around the exchange. Hypothetical. I get myself into a house that has 30k equity. Lets assume lenders won't allow me to pull the equity out. I offer a 30k second mortgage on my house as down payment for the multi. Work out a form of payment. In essence the multiplex owner would become my lender. Would I use an exchanger for this type of transaction?
 

KyJoe

New Contributor
Aug 28, 2007
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I started by buying apartments first. Then I bought a house. I lived as cheap as possible for awhile. Your last senario really is just asking the owner to hold a second mortagage. Take your time, and make SURE what ever you buy will cash flow. I have a really good friend that is going bankrupt. He borrowed against his house (my number one rule to never do), paid too much for his properties, and then mixed it with the restaurant business(short joke- How do you make a small fortune in the restuarant business? Start with a large one). His house was short sold, and banks have foreclosed on almost all of his properties. Several years ago I questioned myself on how I operated, when I became firends with him. He was big, in adds in the paper and great reviews from his restuarants, buying properties left and right. He owned a cool bar, this guy was on top. He was fine as long as he could flip the properties, and when the music stopped, it started eating everything. ALWAYS have a exit plan.
 

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Bilgefisher

Bilgefisher

Bronze Contributor
Read Millionaire Fastlane
Aug 29, 2007
1,849
282
73
Aurora, Co
I thought about jumping straight into multi's. I am concerned about the down payment though. Vollucci preaches the 10% down with 10% owner carryback, but 20% down seems to be the norm. If my area is the correct location for purchase (still have to research areas) then I would move into 1 of the units and work with the bank. If my area is not where I will purchase, then I am will be looking for ways to come up with the needed down payment.

Pulling a 2nd to finance the apartments is not something I really would like to do, but seems to be a decent option to get started. I'm not a big fan of debt either although I am learning the use of good debt. As always though, I am all ears to any suggestions.
 

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