Spex. Even though you're preferably a buy and hold guy, you also mention the necessity of an exit strategy.

When you do intend to make an exit. How do you exit? Through what channels do you sell? I mean, you're making money from motivated sellers, how do you manage to not become one yourself? (E.G. What makes you able to get fully paid for your properties?).

Excellent questions.

I invest primarily for cash flow. Bascially, every time I buy a property I want to see my monthly income go up by a little bit. When I got into REI I decided that my properties would take the place of a normal job. So I structured my business around being able to pay my bills each month. The positive cash flow that goes into my pocket each month is a realized gain.

But cash flow is only one part of the equation. Obviously it is very important that some day I can resell the properties. At some point I'll want to cash out the equity that I created by paying down mortgages and increasing cash flow. Equity is an unrealized gain. If I want that equity to become a realized gain, then I've got to sell the property.

Basically, when you sell a property you are trying to get the equity out. There are three ways to accomplish that. First, you can take your equity all at once (cash sale). Second, you can take your equity a little at a time (installment sale). Third, you can combine the other two - take some cash now and the rest over time.

When you're considering a purchase, it is extremely important that you understand if and how to later sell the property that you're buying. If you're buying a duplex in a middle class neigborhood, obviously, you can expect to sell on a straight cash sale. Same with an apartment complex in a decent enough neighborhood. Those properties are relatively easy to sell for cash or a small carryback so long as the lenders are lending.

But recently I came accross a property that would be very difficult to sell for cash. It was a mixed use property - motel in front, four plex, and 20 unit mobile home park. The mobile homes were all park-owned rentals. The MH spaces could only accomodate 12x60 MHs. The property was in a pretty bad area and accross from two sex shops.

The property would have showed an excellent positive cash flow. However, reselling it later on was, IMO, going to be difficult. First, banks don't love to lend on mobile home parks. Second, banks don't love to lend on mixed use properties. Third, the small MH lot sizes were going to highly restrict bringing in new MHs. Fourth, the bad area would attract the worst category of tenants. So even if I could buy the property at a decent price and make a significant positive cash flow, I would have a problem accessing my unrealized gains - i.e., there were no good exits.

Ok, moving on....

I don't know exactly WHEN I'll exit a property. Right now I'm trying to use the power of the 1031 exchange to move my portfolio into some different RE types. I want to buy more mobile home parks, some self storage facilities, and possibly RV parks and campgrounds. So right now I'm selling off some of my portfolio as opportunities become available.

As for selling, it depends on the kind of property. For small rentals I try to use a realtor as little as possible. I advertise the property as a FSBO, and there are some services that will list your FSBO on the MLS for a flat fee. I try to use realtors as little as possible because they're expensive and I'm cheap. If I'm selling a small multifamily I advertise that I'll carryback a second. If I'm selling a manufactured home, I advertise that for a while normally but after a while I'll start advertising it as a lease/option.

For commerical property I use a realtor. I use CCIM designated realtors wherever possible.

There is no guarantee that I'll never become a motivated seller. Stuff happens, and I can imagine a situation where a catastrophe forces me to sell right now for pennies on the dollar. However, if you buy right and increase value, then you can insulate yourself from taking losses even in catastrophes because you've built in an equity coushin. Motivated sellers get motivated because they have to sell right away. So long as you don't have to sell right away and your price reflects the current market conditions, you can sell any property. So time is what prevents me from becoming a motivated seller.

General macro question, if you were just getting into RE, would you wait for things to settle down or start getting your feet wet here?

I'd start looking now. If I found a deal that was good (20% below FMV & positive cash flow), I'd take it. If you can get properties that show a positive cash flow from rents, IMO, that is pretty decent. But having some equity to soften the blow of a possible down market is kind of important. Also, if you're planning to hold for more than 7 years, you're probably fine not matter what - so long as you're showing a positive cash flow.

But obv it depends on your market and what kinds of properties you're after.

In short, I'm not advocating waiting or buying now. I'm advocating finding strong deals that insulate you from normalish swings in the market.

Can you comment specifically on the advantages/disadvantages of one getting a Realtor's License? I seem to recall earlier in the thread that you mentioned you didn't have one, and I know it's not a necessity for investing in real estate, but would being licensed hinder or hurt you at all?

I've only read the first four chapters or so of "Deals on Wheels", but something that struck me was Lonnie mentioning that he's glad he doesn't have a license and specifically states that "the two biggest killers of real estate deals are attorneys and Realtors." He feels people don't trust Realtors and thinks that his real estate sells better when he does FSBO and leaves Realtors out of it. Since he doesn't have to declare that he's a licensed realtor, he feels people trust him more.

I was planning to get licensed this summer simply to learn more about real estate, but I'm wondering if this is a bad idea when it comes time to sell my house in a year or so.

Selling real estate is very much about self-promotion and salesmanship. Those attributes are just about completely useless for a real estate investor. Realtors have no special knowledge whatsoever. they tend to be very uncreative and most of the time if you try for a creative deal they don't understand they'll represent your offer poorly to the seller. That happens a lot.

Besides all that, people think that realtors DO have some special knowledge. In every transaction that you participate in you'll have to disclose the fact that you're a realtor. So if someone thinks that they're getting hoodwinked by some kind of ringer they might not take it too kindly.

Getting an RE license is good if you want be a Realtor. If you want to be a real estate investor, I'd advise you to not waste your time trying to be a good realtor.

Spex, No questions just wanted to thank you for your time and devotion to this thread. It has helped me open my mind to differant ways real estate can work. After years of thinking about real estate, Saturday I will be looking at a deal that would be a good starter for me. And this thread has been a part of my decision to take the next step. THANK YOU

Realtors usually don't have special knowledge. I am licensed realtor but rarely use my license to make money. I don't think I learned anything special in the class besides some RE terms and a few state regulations. Unfortunately when you get your license there are some things you can no longer do because the state forbids them. Also I remember when I was taking the class we spent an hour on how to round decimal places!! Talk about people who have no brains...and you think they know how to maximize a return on investment??

That said if your an investor and realtor you can be really marketable. I have a lot of investors who look to me for advice because I have the formal training and real life experience to know how an investor thinks. I know how to hit sellers low and walk from a deal if the numbers don't work. Other realtors just want the deal to close so they can get the commission. When doing a transaction I try and teach and explain each step and why I am trying to structure the deal this way. Its probably not the best way to get repeat business but the referrals make up for it.

I'm sorry if I'm hijacking this topic but I guessed this would be a nice spot to ask the question.

I've got some cash (about 13k EUR ~20k dollars atm) I'm not using atm and won't need at all. It's sitting in the bank collecting 4,5% interest.

I've wanted to invest in real estate for a long time now but this thread made me really enthusiastic.

The only problem I'm having is that I'm living in the Netherlands and the RE market is really overburdened by a huge shortage. This combined with very strict protection of renters (example: a contract can't be dissolved by the owner of the property at will, a judge needs to approve the end of the contract) made me decide it probably won't be a good idea to invest in the Netherlands. Ofcourse the US would be a nice choice if you look at the laws and housing prices (way cheaper than here) the problem would be that I can't access my properties so that would be a no-go. Than I thought about Germany, I know prices are much better than here but I don't know about much about the legislation and other concerns like taxes, protection of renters etc.

So my question would be: does anyone know anything about the REI climate in Germany?

OT: You get 4.5% on Euros? Dang we are getting screwed over here.

I appreciate your kind words. Good luck with your deal, and don't hestitate to either PM me or post any questions here.

Spex, I've got a question you might be able to answer:

I'm listening to the audio seminar on http://mobilehomeuniversity.com/mobi...ng-audios.html with Lonny Scruggs.

At some point he tells about how you should control the conversation when making a deal. At some point he tells about this home he's selling for $11.5k and he is able to get a 8.5k down payment. He really likes it and the host even says 'wow'. How is this a great deal? Isn't it better to have a payment of like 4k and carry the note for the rest?

If you can buy a decent MH for $4,000 and sell them for $10k on a note, wouldn't you rather have $8k to create two $10k notes PLUS a note for $3,000? I would. Apparently Lonnie would too.

D'oh. Thanks, I'm enlightened.

EDIT: I thought Lonnie had all the money so he could do Lonnie deals indefinitely.

Its not about the quantity of money, its about the time value of the money that you have. Play around with your finanical calc some and figure out the different scenarios. What you'll see is that you'll get richer if you take the profit now and reinvest it.