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GOLD! STOP Paying Rent: Live For Free

Discussion in 'Real Estate Investing' started by G_Alexander, Apr 21, 2014.

  1. G_Alexander
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    G_Alexander Does it Cash Flow? Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass

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    Fastlane brothers and sisters, I am here to show you the light should you so accept to see it. I’d like to offer some advice from my experiences and to share the wealth of living rent free.

    This is not a revolutionary topic, and I am not a revolutionary human. Living rent free has been done by many. Living rent free with cash flow has also been done by many (including me). It is easy. It will likely end up costing you less than $10,000 (I only brought $5,900 to the closing table on my first property). It’s a no brainer move for those of you who are hungry and ready to forge your own path in life. Ever since I posted about my first 3-flat, members have reached out to me asking what type of financing I utilized, where I began, what books I read...this thread is a basic answer to many of those questions.

    This thread is not intended to make you join the apartment investor Fastlane (although cash flow has severely addictive qualities, just ask @SteveO, @AroundTheWorld, @zen*******, @RealOG, @CashFlowDepot, etc.). No, this thread is here to help you make one simple move that can stabilize your life as your pursue whatever Fastlane you choose. Stop paying the man each month (me) and start focusing on your goals. I hope that this thread will help even JUST ONE person on here to live without the constant cloud of having a rent / mortgage payment every month.

    No longer will the excuse of “I have too many bills to pay to quit my job and enter the Fastlane full time” remain valid. We are building your shelter. We are building your money tree. We are building the castle from which you will wage your war.

    This thread is targeted for those of you who currently have:
    • A stream of income from your lame J.O.B., from your own business (need 2 years of 1099 history for this to work if self-employed), from your full blown Fastlane venture or from your sugar daddy/ momma (whatever) and
    • Currently do not have an FHA mortgage
    We are going to learn how to purchase a duplex, 3-flat or 4-flat with as little as 3.5% down that will cash-flow and pay for itself.

    Are you tired of paying your landlord your hard earned wage each month and having nothing to show for it? Do you wish you had a money tree in your backyard? Good. Let’s rock and roll.

    Let’s break down what you will need to do into a simple list:

    1. Contact / engage a mortgage broker
      1. Hop on Yelp! and search for the best mortgage broker in your city. Pick one who has high remarks in their reviews. Don’t get bogged down searching for the perfect mortgage broker. There are thousands in every city. Call a few and pick the one that pays attention to you (answers quickly, calls you back quickly, etc.)
      2. Obtain a mortgage pre-approval (broker will walk you through the steps) for an FHA mortgage (broker will walk you through all the documents they need you to sign)
    i. An FHA mortgage is a tool that first time home buyers who will be owner-occupants (move into the property) can utilize

    ii. Broker will run your credit (FHA minimum score threshold is around 550 I think, so hopefully you are a responsible, bill-paying-son-of-a-b*tch)!
    3. Once you are pre-approved, the mortgage broker will get you the loan you need once your real estate broker (step 2) finds you the property you want. They will charge you a fee at closing (likely 1%, or 1 “point”) which can be rolled into your loan
    2. Engage a real estate broker
      1. Same thing, head to Yelp! and pick based on reviews. Call a few and tell them what you are searching for:
      2. Tell your broker you want to look for owner-occupant Freddie Mac (HomeSteps), Fannie Mae (HomePath) properties that are between 2 to 4 units (our ideal number is 3 or 4 units)
    i. The reason we like Fannie and Freddie foreclosures is because owner-occupant buyers have a 14 day window to bid on these properties before investors. This restriction is intended to keep real estate investors from driving up the price of houses on the home buying citizens of America. Which is good for you, Mr. first time home-buyer!​

    3. Look at some properties (criteria)
      1. Check out properties you think fit the size criteria, and that are in a good area of your city. Try to stick near big transportation hubs (trains) and try to pick an up-and-coming neighborhood (read: follow the hipsters)
    i. Hipster neighborhoods are the next places that will “turn” economically in a given city, and are great spots to realize cash flow​
    2. Hop on PadMapper.com (good for checking rents in an area) to see what kind of rents you can expect from the property you are looking at

    i. Example (all made up): 3 unit, Seattle with all units having 2 beds 1 bath.
    • Rents in the area are $1,000 per unit on average (same size, quality, finishes, etc.)
    3. Take the gross amount of rents and apply a safe buffer of 50% for expenses:

    i. 3 units x $1,000 = $3,000 per month gross rents x 50% = $1,500 expenses
    • This means you keep $1,500 in your pocket (your “NOI” or Net Operating Income)
    4. Figure out a buffer for your mortgage (and any possible cash flow)

    i. If you paid $200,000 for this property @ 4.25% for 30-years and 3.5% down, your monthly payment would be ~$1,500. Voila, no mortgage
    • This doesn’t take into account that most months you will not hit 50% expenses. Some will be 0% (very cash positive), some will be 150% (cash drain) so be sure to keep reserves set aside from the good months for when the bad months come around
    ii. You make your money when you BUY not when you sell​

    4. Pull the trigger!
      1. I would recommend looking at 15 to 20 properties with your agent and getting a good feel for the market. You will start to recognize trends.
    This whole process will only take 2 months or so and sets you up for months of lower-stress productivity. Stop subscribing to get rich quick mindset. Good things require process and take time.

    If this interests you, just start calling people! Just because you talk to brokers doesn’t mean you HAVE to buy something. Good brokers will hold your hand through the whole process. If a property was recently rehabbed or isn't more than 10 years old...then use 40% for expenses when you do your quick-check math. If a property has under market rents...don't pay for what the property "COULD" be operating at. Pay what it is currently worth knowing that when you increase the rents you will cover your mortgage and realize equity appreciation. Just use common sense.

    If you think you can spend your resources in a better place, or make the “jobless” leap without buying your “castle”, then please do. This thread is for people stuck in a job or who are too timid to take a leap of faith without first building a small form of support.

    I did not even touch on the fact that you can utilize an FHA 203-k loan, and get rehab construction rolled up into your loan amount, or the larger fundamentals of apartment investing, but that is because I am not trying to teach you how to be a guru here, I am simply providing a path to ease your monthly financial burden.

    If you are going to make this move and want to hit a home run, DO YOUR RESEARCH and take a dive down the rabbit hole. If you don’t want to spend a ton of time learning how to hit a home run, that’s alright because you must remember that singles, doubles and triples (pun intended) still put points on the board in the long-run. Just get moving NOW!

    Read some apartment investing books over the course of a few weeks and then plan your path to freedom carefully. Don’t shoot in the dark, but make sure you do in fact shoot. No deal will ever be perfect. The timing will never be right. Pull the trigger now.

    Note: I am not a financial advisor or a lawyer and this thread is purely an opinion that I hope you can draw from. Purchase property, or invest, at your own risk.

    PS. Buy in the winter months if you want to get lower pricing and less market competition.

    G
     
    Last edited: Apr 21, 2014
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  2. ck4750
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    Awesome post man! I've been researching this route because of a post you made a while back. This provides some clarity for me... Thanks!

    Sent from my SCH-I535 using Tapatalk
     
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    more than you know.
    Z
     
  4. pro
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    pro Contributor Read Millionaire Fastlane

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    How much time does it take to do all this and what is your expected payoff?
     
    Last edited: Apr 22, 2014
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  5. G_Alexander
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    G_Alexander Does it Cash Flow? Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass

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    What works for one doesn't work for all. Hotels might fit your style. I don't know of many members here who have reached out asking for information on hotel living, but feel free to post your own guide on it (sarcasm...in case you missed it).

    I am not pitching the real estate Fastlane in this particular thread. I am simply showing people an avenue to pursue their chosen Fastlane with an ease of transition from the slow-lane. Call this strategy a "turn signal".

    Fastlane is syndicating a $100mm equity portfolio of broken notes / multi-units with none of your own cash, and recapitalizing into a full ownership position.

    Fastlane is writing a best-selling RE investing book.

    Fastlane is scaling a fully sub-contracted valet-waste business that services apartment buildings (to increase their NOI) and exiting to the largest waste management company in the U.S. after three years for $250mm

    But these are other methods we will save for another day, and another thread.

    Not everyone here shares your 'fortunate' circumstances, but soon, some smart ones will have increased cash flow and equity coming in, no matter the road they choose.

    Thanks for taking us off topic.
     
    Last edited: Apr 22, 2014
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  6. DeletedUser394
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    Man I hate when people edit their posts a minute after you take a long time to respond to their nonsense hater garbage.

    @G_Alexander thanks for sharing man, awesome to read your progress up to this point and thanks for this thread.
     
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  7. G_Alexander
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    G_Alexander Does it Cash Flow? Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass

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    Man, @RichKid, I feel ya. Thanks bro. Luckily...you know I'm smarter than that and I always keep an Ace in the hole. Had his old post opened in another tab and reflected my response above ;)
     
  8. pro
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    I'm not hating. I just think what he's doing is slow lane :) I edited it to gather feedback on what you think is an acceptable ROI.

    A rental property with a government loan is a waste of time to me.
     
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  9. G_Alexander
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    We don't care about YOU. We care about everyone. When you start thinking that way, you'll be off to your own Fastlane.

    And if it will get you out of here...my ROI (stupid metric to measure an investment anyway) on my first 3-flat was 36.76% or $136,000k in 5 months. Slow lane enough for you?
     
  10. DeletedUser2
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    SO, where is your thread outlining what you are doing that is so hyper efficient and effective with your time, and your resources? what are YOU doing that is kicking butt, and making action takers look small an insignificant?

    what are YOU doing?

    just curious, because you seem to know so much...

    wondering what your returns are, and what your doing to scale...?

    Z
     
  11. pro
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    I'm scaling an ecommerce company and incubating companies with good strategic partners.

    I don't know if OP's concept can be made fastlane (getting a one time FHA loan). It might be good for people boostrapping. I'm not instigating an internet debate.

    Right now I'm bringing on team members so I can focus on fixing big problems, business development, and hiring.

    I'm looking to do something more useful than just sell widgets. So, while things are good, I'm engaged in student mode.

    I think the "pro" username probably annoys some people. I'm glad I didn't choose "PRORICHKID_MILLIONAIREBY15" :p Please change my username to "FIXEDINCOMEGRANDPA_SLOWLANE" ?

    I posted my opinion but I might be wrong so I inquired about your numbers. Respectfully, Grandpa
     
    Last edited: Apr 22, 2014
  12. G_Alexander
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    G_Alexander Does it Cash Flow? Read Millionaire Fastlane FASTLANE INSIDER Speedway Pass

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    All I got from this was "Blah blah blah business business business. Laywer,accountant, development, hiring".....non-sophisticated jargon. No real content. Doesn't sound like you're doing much.

    Hiring accounts and lawyers in no way represents or relates to business success. You sound like a major poser. You sound like a noob.

    PS. Selling widgets is VERY sexy. Boring = money. Just ask @JackEdwards ...... in the meantime, keep working on that "next great Facebook" idea you got. You might even think of the next Candy Crush app and really add some value to people's lives!

    EDIT: PS. Stop going back and editing your posts 100 times, your quote is stuck in my response. Try thinking clearly and slowing down, both in this thread and in life. Maybe you should just keep your mouth shut a while and hopefully some wisdom will make it between those clogged ears of yours.
     
    Last edited: Apr 22, 2014
  13. pro
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    The linked post below is accurate.If you read what I said earlier about the charity challenge (which I'll increase to $500), I'll still honor it if you insist. I feel like it's impolite to challenge you so out of respect and as an ego check I've removed my message.
     
    Last edited: Apr 22, 2014
  14. AllenCrawley
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    AllenCrawley Legendary Contributor Staff Member Read Millionaire Fastlane I've Read UNSCRIPTED FASTLANE INSIDER Speedway Pass LEGENDARY CONTRIBUTOR Summit Attendee

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    @pro I'm not sure why you didn't link to your progress thread. I've linked to your most recent update below.
    https://www.thefastlaneforum.com/co...ening-a-new-business.34984/page-2#post-320366
     
    Last edited by a moderator: May 6, 2018
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    Haters gonna hate.

    Living rent free while being able to pursue anything you choose? Sounds super slow lane to me......:cookoo:

    Thanks again for the post.
     
  17. 1milclub
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    Before I read any further, you deserve a standing ovation just for the address. The only historically known incident of using this address is by Swami Vivekananda on 9/11/1893 when he began - "Sisters and brothers of America!". At these words, Vivekananda received a two-minute standing ovation from the crowd of seven thousand at the Parliament of the World's Religions .

    (Swami Vivekananda was influential in making the heart change of John D. Rockefeller. JDR was very insecure and miser, but after meeting with Swami he became the largest philanthropist.)

    You may be on the path to change someone's life here ... kudos!
     
    Last edited: Apr 22, 2014
  18. biggeemac
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    Let me get this straight because I think you clarified something.....this is only good for doing once, because you can only have one FHA loan, correct? Its not fastlane, but that doesnt matter because, in my mind, fastlane is also all about stacking the deck in your favor. Paying cheap or zero rent would definately qualify here. Also, what would one do if they wanted to do this more than once? Would this mean that any properties financed after the FHA loan would then need to be a more conventional loan requiring a larger down payment? I would think that it wouldn't be too hard to come up with that larger down payment if someone was living rent free and possibly bringing in an income.
     
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  19. G_Alexander
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    Hey @biggeemac,

    In short, and without getting into gray areas, yes. The program is there to let you use as little equity as possible to get into your first property.

    That being said...if you have one FHA property and want to buy a second FHA property, there are a few ways you can pickup another property with only 3.5% down again. You just need a good argument:
    • Moving to another state (easy to get the green light)
    • Moving significantly closer to work (think along the lines of reducing your commute from 45 minutes to 5 minutes, easier to do in big cities and if you buy a little further from work the first time)
    • Increase or change in family size (i.e. got married, had kids and family size grew, parents needed to move in etc.)
    • Going from Multi-Unit to single family (can say "I didn't like having neighbors above and below")
    ...you get the picture. Learn to love getting creative!

    I will also say that many people don't realize you can put down 5% conventional on a single family home (owner-occupant) and you won't have to pay mortgage insurance.

    Don't forget to add some roommates to the unit you live in if possible, and to charge them fair market rents for their % of the apartment!

    I have never worked in the mortgage industry, but as soon as you start making calls and find a couple good guys / gals to walk you through this stuff...you too will become an expert compared to most.
     
  20. SteveO
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    Not slowlane at all. I turned a 4 plex into 16 units and rolled this into 52 units within 3.5 years. You have to start somewhere and this is a great way. The leverage is an added bonus.

    This kid is brilliant. He will go far. He is taking the appropriate steps now in his youth.
     
  21. biggeemac
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    I actually am preparing to move to another state and preparing to flip my FHA financed house onto the market. And yes, I will be closer to my new job.....once I actually get it :)
     
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    Amazing information. Thanks for posting!
     
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    Most epic real estate thread. EVER!
     
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    Every market is different & not all markets support this plan of action. While I applaud the "take action" mentality, what seems easy for you (a seasoned veteran) looks overwhelming to a newbie. There are also things that you know, being experienced, that you take for granted as an assumed variable that rookies will not factor in & have the potential to cause nightmares.

    When you become a landlord, people rely on you. You have legal obligations. When a tenant's AC goes out in July in Phoenix, it's your responsibility to fix it. Do you have the financial nest egg to do so? It's great to show the up-side of a scenario, with all it's shiny, glittery goodness -but there is the flip side, the responsibility side & it's often never shown because it's not glamorous or even favorable. These are ALL things to take in to consideration when you decide if this is something you want to do.

    This idea has great potential, I almost did it myself back in the day when I bought my first house. Then I realized I didn't want to be a landlord & I didn't want to deal with the headaches of tenants. It simply wasn't for me. I've found my way through other means. This thread is a great example of possibility, but it's presented in an incredibly slanted manner where only the upside is shown. Maybe it's just me, but I like seeing both sides of the coin before I jump in with both feet.
     
  25. G_Alexander
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    I should have mentioned (I have in other threads). I live in the building, but I don't manage anything. I don't have time to collect rents, unclog toilets and sinks or chase tenants. That is part of the 50% expenses I mentioned above (8% to property manager and lease up fees). I didn't want to bog people down with the details. They can read a real estate book or some of my other threads (or SteveO's / RealOG's / JScott's) for that.

    The expense ratio I mentioned also covers insurance expenses (1.5% of gross) in case you have a fire, or a hazard scenario (trust me, all lenders require insurance).

    I painted a "rosy picture", but doing anything for yourself in this world has inherent risk. Better to try it than to say "what if?". Some people need a rosy picture or they will only focus on the negatives as a concrete-wall-of-an-excuses to not take action.

    You think I was an expert before I bought? Guess again. School of hard knocks is one of the best schools there is. Ready. Fire. Aim.

    I haven't dealt with one tenant headache in the last two years of ownership. I pay someone $125 a month to do that for me and to keep my building full. You have to be able to detach yourself from the operations to focus on your other projects.

    A bank and the FHA won't let you buy a bad property. They hold the most risk. They have stringent inspection guidelines. They qualify you.

    I mentioned in Step 4 to be sure to keep reserves, because not all months are good months, and some months you will be cash negative. I also mentioned that this is purely my opinion and to invest at your own risk.

    I've enjoyed not making one rent payment in the last 2 years, and in fact, having a money tree print dollar bills for me no matter what I do.

    I've also helped two friends buy 3-flats in Chicago since I closed in November 2012. Neither of them had any real estate exeperience. Both are cash flowing. One got a job in real estate private equity from his great "story" he was able to tell in interviews.

    I chose not to sit on the fence. If I lost everything tomorrow, no one could take away the lessons I have learned and the network I have built.
     

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