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Originally Posted by fsista
Spex. After your very first deal, which I can understand learned you a lot, how did you proceed? I've found everything you said so far in this thread to be of great inspiration, and I would really like to hear how long it took for you to manage your second deal etc., basicly how you continued once you got started!.
My first year as an investor I bought two properties. The second year I bought 3 properties. The problem was that after that first deal I was basically out of money. So I was forced to get more creative. I looked for properties where I could get in with little or no money down.
I'd go out find and old landlord that is selling off his stuff and doesn't really manage the properties anymore. I'd look for properties that were very distressed but structurally sound. I'd make seller financed offers on those properties putting like 10% or so down. I borrowed the 10% to put down from private investors and sometimes from credit cards. When I bought something I'd go in and clean and paint. I'd go buy carpet remnants and try to recarpet. Then I'd rent and repeat.
Each property I did would make me more cash flow each month to reinvest. Pretty soon I didn't need to go borrow private money any more. After several years I had some equity from paying down mortgages and increasing cash flow, so I pulled some of that and bought an 8plex that was pretty rough. I renovated that and rented. Then I started to sell of a lot of my smaller properties - duplexes and single family homes.
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I also wonder if you only have done "cash flow deals". In case you sometime did something that wasn't a cash flow deal, please tell me in what way you convinced yourself to do a deal outside your main circle of competence.
Oh sure, I've done several deals that didn't cash flow. Once a banker asked me to buy a warehouse from his bank. I explained that I've never owned any warehouses and its not really my business. He told me that FVM is $140k and they just wanted the balance of the loan - $70k. I did a little DD and bought that thing even though it didn't cash flow. I didn't even know if there was a market for renting such a property. I tried to rent it but ended up selling it instead. I think that I got about $130 or something for it. But it took like 8 months to sell it and I had to float it until then. Plus I had to pay all the closing costs and everything.
I've bought a few small apartment buildings that were so filthy, run down, and infested that nobody would live there. And that is saying a lot considering that you can just about always find someone to live in a rental. But I had experience turning around poorly managed properties so I knew that I could fill the place and how long it would take. I also had capital to invest in the project.
Sometimes you find no-brainer type of deals - like that warehouse. Sometimes you have to use your experience to judge whether a project can be profitable. As you get more experience your judgement will get better and you'll know how feasible a project is and how much it will cost.
negative cash flow properties are inherently high risk. Its not that they can never be done. Its just that to do them safely you have to have some realistic expectation of how the project will go. That is why I don't recommend negative cash flow deals to beginners. Just stick to the positive cash flow deals and you'll be fine.