spex, may have been asked before..

what is the best thing that a college graduate can do immediately after graduating if they want to get involved with real estate investing, but has little or no capital.

I dunno. Personally, I wouldn't want to be in a position where I buy a propery knowing that I'll have to violate a law in order to make the returns I need. I'm sure that your sense of the situation is right. However, I just don't think its wise to knowingly violate the law. Particularly if you need to violate the law in order to make an investment.

This issue has been discussed at length already. See all the posts on mobile home retailing/financing.

Being that I live in Orlando FL, this is something I've thought about EXACTLY doing. Spex, what do you think about buying 3-5 homes like this during this summer, renting them out, building equity for almost free as they pay 80%+ of your mortgage payment even if its partially negative cash flow. In 5 years or so you're sitting in pretty damn decent shape with this setup aren't you? Or am I completely forgetting about an aspect that doesn't make this seem like such a braindead obvious idea? I've read this entire thread and I've learned a lot. I'll echo the crowd and say thanks Spex.

What if housing prices decrease? And how do you want to sell a rental property that's losing money? Who's going to buy it?

I have no sense whatsoever of the Orlando market. So I have no idea. My understanding - mostly formed from listening to the news - is that there are so many condo projects that are still being built that it will take several years for the inventory to be absorbed.

Besides that, I think that it is going to take a minimum of 30% down to get any financing on these things as an investor. The banks certainly don't want to take these properties back. It seems to me that they are going to be reluctant to finance any investors in that market.

Personally, I don't invest in this way. To me it is too risky. One problem is that you have to pay every month to cover expenses. I hate that idea so much that I'd reject on that basis alone. However, another problem is that you have very limited exits in the down market. That situation is exactly what busts most would-be RE investors. I'm trying to save you from that. Your returns have to be enormous to take on that kind of risk.

GiddyUp's is an experienced professional RE investor and his friends that are buying these properties likely are too. I'd ask him his advice. Personally, I think that this is a bad way to get started in REI.

Price decreases can happen for a lot of different reasons that investors have no control over. Changes in tax law, tenant rights law, zoning ordinances, neighborhood association rules, financing/banking practices, and on and on and on, can all cause the price of rental property to decrease.

If you are upside down in a property, you will lose money. Period. That doesn't mean nobody will buy it. It just means that nobody will buy it for the price you need to break even. The best you can hope to do in that spot is keep a low vancancy rate by keeping a clean, desireable property to the market segment you're after.

The only way to combat price declines is by buying right to begin with. When you buy right you can afford to take a hit on the price and still come out ok. When you overpay the market will kill you in a decline.

In real estate, a famous investor once said:


"When you buy a property at the right price, you can make all the mistakes in the world and still make a profit. When you buy a property wrong, you can do all the right things to the property and still wish you never bought it".


That is why it isn't about location but all about price.

First I would never buy something that only pays 80% of my mortgage. The deals im talking about in middle class neighborhoods are ones where the rents will cover 90% or more of your total expenses including debt service.

I understand Spex doesn't like these deals because they are much riskier. But the profit potential is also much higher. Its the classic risk reward ratio. Think of spex's deal's as value investing while these kinds of deals are swing trading. Don't get me wrong, what spex is advocating is the best and safest way to create wealth over the long term!! but not everyone wants to wait 8-10 years to build up a cashflowing rental portfolio.

Also in Florida my investors are looking at middle class neighborhoods where they can pick up a house for under 150k or so. This way the rents will make sense and they can break even on cashflow. The equity they buy these houses with is almost imaginary right now. If they buy a house for 140k and its value is 220k IN TODAYS MARKET (meaning that the lowest comps and actives are going are all around 220k, down from 280k at the peak) They know they most likely can't sell it for 220k today. The equity is going to be made in 3-5 years. They could sell it for maybe 175k today but with transaction costs and minor repairs its not worth it. But like I have said before, buying a 3/2 or bigger in a nice neighborhood is always going to have decent value. Stay away from 2/1's and 3/1's unless the rents produce a decent cap rate.


I pick up 3-4 houses a month in Orange/Lake/Seminole Counties. Feel free to PM. Have you been to the Central Florida Realty Investment meetings? (CFRI) Its the largest RE investment meeting in Florida. Lots of resources, also lots of people trying to sell their services. Good networking tool.

REI meetings anywhere is the best way for people to network the REI world. Good, bad and otherwise the people that go are all in involved someway in REI.

Another question:

You think a property is poorly managed. As is, its terribly overvalued. If the manager isn't a tard, it becomes undervalued. How do you exactly do this? Its a trailer park, I'm familiar with the 60/30 rule you've used. But obv if it isn't cash flowing or is a huge dump like one of the deals you described... There is more concern.

This has probably been answered and I'm just donking it up.

It seems that mobile home resale and financing offers some pretty sick returns. If you were looking to put less than $500k to work, why would you want to mess around with anything else? ie SFHs

Its super time intensive.

Well not only super time intensive...


It's a business.


You don't take 500K and just dump it there a sit back and collect checks. You have to manage a business.


With SFH's I make unreal sick ROI's. Sometimes I only put up a couple of hundred bucks, use other people's money to finance the deals and return tens of thousands on my few hundred bucks.... But I have to run an entire business doing so.

Thanks for replying....Can you elab on what youre doing? What kind of hold times are we talking about?

I do 2 things, it's quite a simple business model actually.

1) Houses I negotiate down to 70% of market value I buy cash using line of credit or private investor money where I pay them 10-12% accruing interest.

I sell the house (closing) 2 months later at about 90-95% of market value. It probably costs me around 5-7% of the value of the house as holding cost / closing cost / selling cost. So I'm in it at 76% and sell at 90-95%. That's pretty good.

2) Anything above 70% market value I take an option on it. Option meaning I have the right to buy that property at X price, and whatever I sell above X I keep. This way I don't even own the property, the owner deeds it over to the buyer I find. No closing costs, no holding cost, no funding cost, only marketing cost.

I'll put up 500-1000$ in advertising and sell it at about 90% of market value.

Last deal I cashed I took an option on a property on February 25 and on March 26 I got a check at closing.

So it take anything from 75% market value to 85% market value and option ---> auction it off.



If I were to buy and hold properties, my ROI would go down significantly. CoC would be MAX 25%. Plus it is difficult to buy properties at 10% cap rate unless I buy it at more than 30% off the market value. I'm waiting for a market correction until I hold anthing long term.

Sounds great....is this market dont you ever get stuck with something? And is there anyway around having to pay a 6% commission?

I don't get stuck with anything because I buy right and sell right.

If you buy properties really low, you can mess up everything after that and still make money.

I auction properties off. I do marketing bliztes and send around 80-100 people over on a weekend to bid up the property. Bidding starts at about 80% of market value and runs up to 90-95%, it doesn't often hit 100% of market value.... Realtors sell at 100% but they also sit on the property for 6 months, my properties are sold in 1 weekend.



Avoiding 6% commission? Well this is quite a general question. The only way I can think of to sell a property at 100% of market value without commission is selling it yourself but taking just as long as a realtor to sell.

In the flipping business, if you aren't in and out within a few months, you are doing something really really wrong and you will pay dearly for it.


But it's not all roses and peaches like I make it sound. Behind every check I get comes with a bucket of sweat, i.e. Negotiating with dozens of sellers, deals falling through, murphy coming around and screwing things up, hedge factor comes in and messes up the numbers, etc etc etc.... That's business.

IMO, it'd be hard to keep $500k working in MH notes. The notes just pay off to quickly. Besides that, I don't think that you could realistically keep that many notes in the air at once without giving up a large chuck of your profit - i.e., hiring a lot of staff.

If I wanted to invest $500k into MHs I'd find MHP owners to partner with. The problem in the MH world right now is that there are almost no banks that will finance buyers. This poses a major problem for MHP owners. The useful life-span of a MH is only about 20 years on average. Just about anything over 20 years old will end up abandoned on the lot and the owner will end up with an empty space. Since there are no banks, there are no buyers to bring new homes in. The situation is such that modern MHP owners must take it upon themselves to haul home in a resell them.

If I had $500k that I wanted to make a 30% ROI on, I'd work with MHP owners to fill empty lots. You will find and buy the homes and pay to haul and set them. The park will fix, show, advertise, and run credit checks on buyers. You decide if you want to fund the buyer. If you did it like that, I feel that you could easily be in a home for about $10k that will retail between $15k to $20k, and collect payments of $250-$350/month for several years.

There is a huge demand for this type of chattel financing amond MHP owners. Check out www.mobilehomeuniversity.com and you'll find plenty to do with your money.

I can understand taking an option in todays market but buying something at 70% FMV and selling it in two months for 95% seems rather optimistic to me. I don't know anyone who is selling houses at FMV. There is just too much for sale in my markets. I know investors who are buying at 60% FMV and still aren't planning on selling anytime soon.

Why would someone buy something at 95% FMV when there are foreclosures selling at 70% FMV??

I understand your not in my market (Florida) but even in better markets selling a house in 2 months seems quite optimistic. I believe the national housing invesntory isaround 10-12months at current sales pace.
..
Im very curious on how you sell when all others are struggling...

EDIT: I believe we need to clarify FMV in this discussion. Especially how it relates to forelcosures, closed sales, active sales.

You live in Florida or whichever state that is being massacred.


I live in Montreal, Quebec, Canada where sellers still think their house is worth the moon. Canada is being largely uneffected by the mortgage meltdown.... But every market has its time when it will be corrected, only a matter of time.


Buyers are still stupid and paying for it.


I'm in a post hot market. When the market turns, you can be rest assured I adjust my buying strategies.

What do you think about this idea....

Me and my Brother can probably save about 60-80k between both of us, which would get us a loan of about 700k. We were thinking of buying a property, building a duplex on it (2 bedrooms each) and living in 1 side, with tenants on the other side. Not really an investing idea but just a general way to have a place to live and pay off the property more easily at the same time

Have you considered buying instead of building? Would be easier, quicker and likely cheaper.

I agree with Brons. I will probably be cheaper to buy than build. It is almost always cheaper to buy than build because whenever its cheaper to build than buy you'll see builders going crazy to get the money.

ok, thanks

you too Brons

Spex,

I searched this thread but didnt find an answer - are there any books the novice RE investor should read?

Thanks for this thread.