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My PLAN - next step? (LONG)

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Sid23

Bronze Contributor
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Hi all,

I’ve made some huge life changes over the past 4 months and now I’m in a new city with an updated plan. I wanted to post it here to get feedback, comments, critiques or anything else the great minds here might want to provide.

Since I know someone (probably Russ or ATW!) will ask how this current stage of my plan fits into my overall PLAN, let me say a few words. I’m 32 years old right now and my goal is by age 37 to be running my own real estate firm that does two things: 1) large, multifamily development deals. I’ve come to realize just how passionate I am about urban development and would love to do some experimental type deals in the future that express my passion in green building, design and modern architecture. 2) owns apartment buildings, other real estate and/or has developed another line of business that provide the monthly cashflow to live on while I do the more risky development deals. I was planning to just do development deals, but this economic downturned really showed me the value of having cash flow, even if you are making millions from big development deals because if your ability to do deals dries up (as it has done for some great developers these days), you are sunk if you don’t have cashflow to keep your business alive. I don’t expect to have the cashflow necessary to quit working anytime soon, but my preliminary goal is $29,166/month by the time I’m 42 (10 years from now). That’s a lot of cashflow, but that is how much I want and I know if I put 110% into my plan for the next 10 years, I plan to get there. That cashflow doesn’t take into account money being funneled into my business through development deals, unless it is specifically used to acquire real estate for the passive income purpose.

So I’m now planning backwards off that 10 year goal. I think there are 3 main components to achieving this goal. They are as follows:

1) Relevant real estate experience; deal locating ability; deal making ability; successful deal completion ability

2) Team of development mentors, lenders, equity contacts and other key team members

3) Ability to raise money from other people and personal financial situation that allows me to be my own boss by my 5 year goal.

For those of you who don’t know my story, I spent the past 5 years working as a development project manager in one of the biggest and most competitive real estate markets in the country. I was the lead project manager on 2 “Big Deals†that the company I worked for developed from Day 1. I’m now in a smaller city (but certainly not “small†city) working at a new company as an asset manager where I manage and oversee a portfolio of 8 multifamily assets around the US. I’m responsible for financial oversight, budgeting, investor and partner relations, etc. So between these 2 experiences I feel I’m moving in the right direction as far as #1 is concerned. I will need to improve my own ability to put together and locate deals, as all of the deals I have/am worked on have been put together by someone else.

As for #2, I’ve spent my early time in my new city connecting with people (http://www.thefastlanetomillions.com/general-business-discussion/24403-how-do-i-find-mentor.html) and have done my best to keep in touch with my connections in my former city. So while I have a lot more work to do here, I think I’m again moving in the right direction.

#3 is where I need advice from the great minds here. I’m going to give a little more background on the situation and then ask a few specific questions.

As I mentioned above, I moved out of a very high priced city and I want to be able to take advantage of the opportunity that provides. My wife and I are currently living with her mom while we get settled and figure out our next move. We’ve accumulated a significant amount of debt (well, mostly I did between ages 20-25) and my wife has been in grad school and then doing internships for the past few years, so we definitely fall in the “low income, high debt†category.

I have accumulated a good amount of real estate knowledge over the past 5 ½ years and with the market where it is today, I feel like it would be a smart move when we move out to acquire our first investment. I’ve thought about using a HUD203k loan to buy a home we can get, rehab while living in, then resell. I’ve also thought about buying a 4-plex and living in one of the units, but without strong reserves, I’m not confident about that. Lack of reserves is one of the biggest killers in real estate, and I’ve seen several examples over the past few years of otherwise brilliant people losing millions in net worth over not having proper reserves.

Currently, my wife is studying for 2 national board exams and needs to receive some certifications before she can practice therapy here. She will be done in April and then looking for a position. (FYI, we carefully evaluated if she should work part time at Starbucks or something while studying, but she really needs every available moment to pass these exams.) Thankfully, my paycheck currently covers all of our living expenses, debt obligations and everything else we do, but doesn’t leave us much cushion.

I’ve met with a good mortgage broker and found I can only qualify for a $100k home…best case scenario being $140-150k. When my wife is working, it goes up to $250k-300k.

And even though we can hypothetically qualify for that money, we would drastically have to cut our budget in our ways to afford the mortgage payments. So we will be at ramen noodles – at best – with this play. Hope would be to buy a $125k home, put $10k into it, then resell for $175k. Then simply repeat the process.

So here are my questions (thank you for reading this far if you are still awake!!):

1) Do you think buying a home to live in and rehab is the best next step for me right now?

POSITIVES:
a) We could move in, use some HUD funds to do a light rehab, then resell. Since we are living in the home, that would help mitigate some of the risk, because then worst case we just stay in the home longer than we had hoped.
b) Also, once my wife begins working in April/May, we’ll have extra funds for reserves, emergencies, etc.
c) If we act now, we might be able to get into contract before 4/30/10, so we could qualify for the $8k tax credit.

RISKS:
a) Does the first time homebuyer market dry up after the tax credit expires and the government stops buying MBS in March?
b) I have never rehabbed a home before so there is risk of me not making the right decisions.
c) Also, I am not good at “fixing†things, so I’d definitely need to hire someone to do the work.
d) I’m embarrassed to find a partner if needed. It seems to me like I’d lose credibility if I needed to find a partner on a $125k deal because I don’t have enough funds to make it happen.


2) Or would it be smarter to try and partner with someone and aim a little higher right off the bat? What about finding an under valued 4-plex? We could live in one unit, manage the building (possibly take a management fee), supervise a light cosmetic rehab. Then in 2011 or 2012 when we are able to raise rents, go ahead and do so. Then sell the building and roll the profit into a bigger one.

I feel like I’m in a good position experience wise and flexibility wise to make a smart move in the right direction toward my goals with this next decision. Still in a bad financial place, but my wife and I recognize that and are willing to live “uncomfortably†for awhile to rectify that.

Is there anything I’m missing with my line of thinking here? Anything you would suggest or something that I’m missing here?

Thanks a ton.
Sid23
 

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Sid23

Bronze Contributor
Speedway Pass
Aug 9, 2007
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How can I make this thread easier to respond to? Do I need to provide additional info? Let me know how I can assist in making my post better. Thx.
 

Russ H

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Weird. Did a response to this, and thought it posted.

Musta gotten lost in da ether.

I'll do it again (sigh) . . .

-Russ H.
 
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Sid23

Bronze Contributor
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Sounds good - thanks Russ! I look forward to your response.
 
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Sid23

Bronze Contributor
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Aug 9, 2007
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bump for more ideas!
 
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Sid23

Bronze Contributor
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Aug 9, 2007
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bumping again...hoping for something.

Also been reading a lot about the market double dipping and dropping another 5-10% before the end of the year. This would obviously have a negative effect on my plan.
 

Kung Fu Steve

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I have studied real estate because I find it fascinating but I do not have experience in the realm. I am guessing with your knowledge you already KNOW what to do, you just need to DO what you know.

Success is 20% mechanics... 80% psychology.

1) Do you think buying a home to live in and rehab is the best next step for me right now?
There is never a "right time" to do anything. Especially going into business for yourself like you are doing. The economy is always bad, there is always too much competition, money is always going to be tight.

If this is your goal and you think it the best way to go about it, do it. The experience you gain from something like this will be far more valuable than the property itself will ever be.

With the housing market crashing it would seem be a perfect time to buy. Terrible time to sell.

Is staying with family still an option for a while? Why not purchase a home for rehab and rental and then build from there? From what I understand of the real estate world, "experience" usually equals your net worth. (correct me if I'm wrong)

b) I have never rehabbed a home before so there is risk of me not making the right decisions.
c) Also, I am not good at “fixing†things, so I’d definitely need to hire someone to do the work.
Wouldn't be too tough to head down to the local Home Depot, pick up a "do it yourself" book and learn from that. Still having trouble? Ask the older guys that work there, they will tell you exactly how to do it and could give you instructions - they'd be glad to!

d) I’m embarrassed to find a partner if needed. It seems to me like I’d lose credibility if I needed to find a partner on a $125k deal because I don’t have enough funds to make it happen.
This thought is just silly. You should feel embarrassed about putting together your first deal? You will never act! It is not a handout, it is not a charity case, it is a profitable deal for all parties involved. There are lots of investors out there looking for places to put their money. You will be a match maker at first until you have the funds to create your own deals, but even then, fastlaners use other people's money to invest instead of their own, it creates a much higher ROI, if not infinite.

I sell safety gear and equipment out of my school. This amounts to about 2,000-3,000 in sales per month. Which is approximately 10% of my bills. Will I stop selling that stuff because it is a "small pittance" in comparison to everything else? No way! Every bit is just as important as the next. You're "small time" deal of 125k is just as important as your 10th complex will be.


2) Or would it be smarter to try and partner with someone and aim a little higher right off the bat? What about finding an under valued 4-plex? We could live in one unit, manage the building (possibly take a management fee), supervise a light cosmetic rehab. Then in 2011 or 2012 when we are able to raise rents, go ahead and do so. Then sell the building and roll the profit into a bigger one.
While you have lots of knowledge and experience let me ask you this: Are you ready for this kind of deal? If you cannot answer YES confidently, start small and build your way up. You mentioned reserves being a problem, well you must also see reserves of information. I have only been in business 2 years and have already seen that everything I spend money on, weeks, days, or even minutes later I realize I could have done for half the price or free. But the only way you can realize that stuff is through experience first. Perhaps your first single family home will result in the experience it takes to save hundred of thousands of dollars in your complex deals later on.

I am a firm believer in the fact that you cannot run before you walk :smxB:

Hope this helps, best wishes!
 

MJ DeMarco

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Not that I haven't read nor taken an interest in your story, its just the RE is not my gig nor my preferred vehicle. Since it is a road that I haven't traveled, I probably can't tell you the view. =)
 

cfittowin

New Contributor
Jan 26, 2009
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Sid

I like your passion man. I am a member of the ULI. the Urban Land Institute Maybe this would interest you. I'm sure you can make connections here as I do and it would cater to your interest in urban development. I see that you are an asset manager, and I'm guessing you are continuing to expand your RE knowledge every day you step into work.

I love real estate as well. I bought my first investment prop last year. I haven't put RE on the back burner, but I am more focused now on building recurring revenue streams to propel my RE ventures. Squirreling away money to go from one property to the next is very SLOWLANE. I might have a small empire at the age of 50 this way.

Risk D: THROW THAT EMBARRASSMENT OUT THE WINDOW Who cares about what others would think? This is your time.

I like the owner occupied investment prop given your situation.
 

rcardin

Contributor
Oct 30, 2007
512
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Arlington, TX
After being a bachelor for 12 years and being married for the same amount of time I can tell you that you need to do whatever it takes to get out of her momma's house. Mothers and daughters have a close bond and it only takes a small screwup to turn into a very uncomfortable situation. You cannot compete.

Find the ugliest house in the prettiest neghborhood you can afford (100-125k). Spend the next year learning how to rehab. Project management is one thing but until you know how to do something,ie. Sheetrock, plumbing, painting, etc, you will never know what is worth hiring out. I posted in another thread that you need to figure for every $1.oo spent on materials it takes $3.00-$5.00 to have it installed. Learn how to do it yourself and save the cash. When you learn what things cost vs what they cost to get installed you will have mastered rehab.

Success in any field is knowing something that most people don't.
 
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Sid23

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Aug 9, 2007
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Thank you for the great replies!
 

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Cat Man Du

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Jul 30, 2007
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Hi all,

my preliminary goal is $29,166/month

What's the $166 for. Sounds like an asset manager..lol

So I’m now planning backwards off that 10 year goal. I think there are 3 main components to achieving this goal. They are as follows:

1) Relevant real estate experience; deal locating ability; deal making ability; successful deal completion ability

locating & making are two horses of different colors....totally. I would think..that the making is where you would need help....SALESMANSHIP STUDY NEEDED!




As I mentioned above, I moved out of a very high priced city and I want to be able to take advantage of the opportunity that provides. My wife and I are currently living with her mom while we get settled and figure out our next move. We’ve accumulated a significant amount of debt (well, mostly I did between ages 20-25) and my wife has been in grad school and then doing internships for the past few years, so we definitely fall in the “low income, high debt” category.

This is the reason that I would strongly suggest that you don't take on extra debt and purchase a home.

I have accumulated a good amount of real estate knowledge over the past 5 ½ years. Lack of reserves is one of the biggest killers in real estate, and I’ve seen several examples over the past few years of otherwise brilliant people losing millions in net worth over not having proper reserves.

Many of them had much more in reserve than you have.

Currently, my wife is studying for 2 national board exams and needs to receive some certifications before she can practice therapy here. She will be done in April and then looking for a position. (FYI, we carefully evaluated if she should work part time at Starbucks or something while studying, but she really needs every available moment to pass these exams.) Thankfully, my paycheck currently covers all of our living expenses, debt obligations and everything else we do, but doesn’t leave us much cushion.

She has enough on her plate ...without a move. Homes represent something different to a woman, it's her security blanket.

I’ve met with a good mortgage broker and found I can only qualify for a $100k home…best case scenario being $140-150k. When my wife is working, it goes up to $250k-300k.

This is when you could make the move.

And even though we can hypothetically qualify for that money, we would drastically have to cut our budget in our ways to afford the mortgage payments.

Don't do this.

So we will be at ramen noodles – at best – with this play. Hope would be to buy a $125k home, put $10k into it, then resell for $175k. Then simply repeat the process.

So here are my questions (thank you for reading this far if you are still awake!!):

1) Do you think buying a home to live in and rehab is the best next step for me right now?

Noooooooooooo.

POSITIVES:
a) We could move in, use some HUD funds to do a light rehab, then resell. Since we are living in the home, that would help mitigate some of the risk, because then worst case we just stay in the home longer than we had hoped.

What if prices drop another 15% ?

b) Also, once my wife begins working in April/May, we’ll have extra funds for reserves, emergencies, etc.
c) If we act now, we might be able to get into contract before 4/30/10, so we could qualify for the $8k tax credit.

Will prolly be extended again. Patience.

RISKS:
a) Does the first time homebuyer market dry up after the tax credit expires and the government stops buying MBS in March?
b) I have never rehabbed a home before so there is risk of me not making the right decisions.
c) Also, I am not good at “fixing” things, so I’d definitely need to hire someone to do the work.
d) I’m embarrassed to find a partner if needed. It seems to me like I’d lose credibility if I needed to find a partner on a $125k deal because I don’t have enough funds to make it happen.

Re: the above,

d) If you need a partner.................don't do it. You're not ready financially.


2) Or would it be smarter to try and partner with someone and aim a little higher right off the bat? What about finding an under valued 4-plex? We could live in one unit, manage the building (possibly take a management fee), supervise a light cosmetic rehab. Then in 2011 or 2012 when we are able to raise rents, go ahead and do so. Then sell the building and roll the profit into a bigger one.

You have never been a landlord..........do you have the mental makeup for this?

I feel like I’m in a good position experience wise and flexibility wise to make a smart move in the right direction toward my goals with this next decision. Still in a bad financial place, but my wife and I recognize that and are willing to live “uncomfortably” for awhile to rectify that.

Stay with mom, if you can live uncomfortably.......Stay with mom...much cheaper and gives your wife her security blanket.

Is there anything I’m missing with my line of thinking here? Anything you would suggest or something that I’m missing here?

If you must move out..find an investor that will buy the home...rent it to you at a reduced amount and give him your labor in the rehab.....BEST of both worlds.

Thanks a ton.
Sid23
:eusa_clap: FOR ACTION.
:coffee: FOR PLANING.
:chatter: FOR ASKING FOR FEEDBACK

SEE ABOVE!
 
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Sid23

Bronze Contributor
Speedway Pass
Aug 9, 2007
696
162
81
Thanks CAT for the reply. I understand what you are saying about not being ready financially.

I think I might have to go back to the drawing board and figure out a way to make some money in the meantime, before I deal with a rehab.

Problem is we need to move out in a couple of months, regardless because her mom is selling the house. My wife wants to live in a condo - definitely doesn't want to live in a construction zone - but I could have convinced her since it would have furthered our plan.

I feel lost right now. And stressed. Which makes it hard to think big and see all the possibilities out there for improving my situation.

Thanks all!
 

Kung Fu Steve

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Thanks CAT for the reply. I understand what you are saying about not being ready financially.

I think I might have to go back to the drawing board and figure out a way to make some money in the meantime, before I deal with a rehab.
The only way I see you not being "financially ready" to invest your money into something is if you cannot eat or sleep. Figure out a way to take care of the most basic of needs and expand from there.

Certainty is a big deal. If you are not certain you will be able to feed your family two things happen. Either you get extremely motivated to push forward like some, or you could get real down on yourself and not take any action.

But I pose another question: When will you be financially "ready"? The answer is usually never. There is never a good time to start a business, there is never a good time to invest. But that just means that if every time is the worst time than now is just as good a time as any :thumbsup:.


I feel lost right now. And stressed. Which makes it hard to think big and see all the possibilities out there for improving my situation.

Thanks all!
Clarity is power. When you say "It is hard to think big and see all the possibilities", you have too many options. Choose something and try until you succeed.

Good luck Sid. I can tell you that you should contact Montexan or Runum about this stuff, they are both geniuses in this field. Montexan put together a great presentation on real estate for B&P. There are also several people on the forum that could give you advice on SFH and Rehab and how to bootstrap your way at the beginning.
 

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