Usually that'd be based on the borrower's credit and the overall LTV (on FMV) of the property. i'm not too sure what the banks will lend up to on the LTV right now. it used to be about 90%, but probably it has gone down. We'll assume that its still 90% for now.

In your case, you've got 66k/90k = 73% LTV. If you can refi up to 90% then you can have total debt of $81k. $81k-$66K = $15,000 available to cash out.

If your payment history with the bank is good and your credit score is decent, you can likely get this deal done, IMO.

Well....I can imagine some situations where such a ruse would work. for instance, some property sellers will offer low down generous short-term financing terms to buyers knowing that they buyer will never be able to close when the loan is up. I've seen that kind of think in the MHP arena a lot of times. Seller asks a very high price for the property, but at 10% down, interest only for 3 years or something. The inexperienced buyer, fresh out of a little-money-down seminar, snaps the property up, hoping for an easy turn around. Later on they find out that its going to cost much more than anticipated to rehab the park, and the interest pmts on the inflated pp eat up all the cash flow. Inevitably, the loan comes due in 3 years and the buyer defaults. The seller repeats the process. I'm aware of two sellers that are notorious for doing that over and over again.

Basically the seller is doing exactly what adam suggested. He is playing the motivated seller in order to entice a motivated buyer to pay too much on unreasonable terms. I can't see how that kind of thing could work in a Lonnie deal.

Spex,

Thanks for a great thread. I havnt read the whole thing but im working on it.
I have a situation i would love to hear you comment.

First some background on me:
I have been a highstakes pokerpro for many years and i have made good money. Recently i started to feel that i need and want to do something else than playing poker for a living.

Now the case:
My wifes dad is a real estate businessman and he goes back 30 years or more in the business. He builded a very big company out of nothing but was wiped out in the beginning of 1990 due to some major bankcrises in sweden. After that he started out again and has built up a new company with my wife and her sister as 50/50 owners.
He doesnt own anything on paper but he is the man that decides everything and kind of owns it despite whats on paper.

Anyway he is 65 years old now and wants to quit working. He needs to sell the company, or his share of it, to get some money to live the end of his life.
He is a very nice guy and we are very good friends.
We have talked about me buying majority of the company from him, leaving my wife and her sister as minority owners.

Everybody but me think it would be great. I dont really know. I can say 100% that he is not going to scam me in any way. I will probably get a fair price. We have decided that he should ask an old reputable firm that estimate prices on these kind of houses to get a price that we can work out a deal from, if im going to buy.
Before this company has done this estimation he thought that the price for 60% of the company would be around 300k. I can and will probably pay that in cash if im buying.
The company owns 3 buildings with rental flats. The are newly renovated and in very good shape. They are central located in a small town of sweden and fully rent out. (Im swedish btw) This town is 400 km from where i live at the moment.

My idea is that i could buy this company for a fair but not great price but instead of doing a superpurchase i could learn from him at and get his knowledge along the way. He has said that he is going to help me all that he can if i want to.

My plan right now would then be to sell these properties in lets say 5 years, and buy something that is nearer home for me. When i sell i hopefully do that with a profit and at the same time i have learned much faster about the real estate business with him being my mentor.


What do you think of my situation? I would be very greatful if you could say exactly what the downsides and upsides are for me.
Every advice is valueble for me.
I havnt decided yet to buy, so i hope you understand my thinking.


Sehr Gut

Roughly 20%. At the time the person offered 1.05M cash the house was worth, according to zillow, 1.15M. Not sure if my math is correct, but I certaintly hope so. (945,000 - 1,150,000)/1,150,000 = 17.8%

Our current house was worth $630K at its peak and now its only worth $500K (according to zillow). ($500,000 - $630,000)/($630,000) = 20.6%.

The two houses are about 2 miles apart from one another.

Still. I feel we could have bought it for less, but in our area there are only 6-8 houses thats are currenty selling in our price range and this is the cream of the crop. Largest sq foot and nice view.

As long as my parents are happy.

I stopped reading here imo. Not sure how you buy something from someone that doesn't own it.

Well, i tried to explain it but i probably did a bad job. Lets try again.
In the bankcrises in early 1990s he lost everything he had and he also lost license to run a business or to own anything at all.

Therefor he started the new business in his daughters name. They havnt worked or done anything in the company but he has lived off the business and built it up steadily.
He and his daughters all agree that he "owns" his faire share of it, even if thats not on paper.
Things can be like that when its a family company.

So the money i might buy it for will end up in his pocket.

1) if you father in law has not TECHNICAL ownership of the business, then he has nothing to sell. Basically, you are the only buyer. Who else could he market the business for sale to? So the most you would willingly pay for it is exactly what his "share" is worth. No willing buyers means that you don't have an asset.

2) It sounds to me like you don't really understand the investment too well. Probably not too smart to put $300k into buying something you don't really know how to operate.

3) I wouldn't do this deal. However, I can see why you might consider it in your position - with the seller being your father in law and such. But you DEFINITELY under NO CIRCUMSTANCES should pay the full amount in cash up front. That deal is WAY to generous even if the guy is your father in law. Perhaps if you move forward you would give him maybe $75k up front and make payments on the balance or something. That'll keep him more active in the business while you **** it up for a few years.

1) You are right here. I know that im the only buyer if its going to be a sale for 60% of the company. If im not going to buy it they, my father in law, my wife and her sister, will sell the whole company and he will get his share that way. I agree 100% that im not buying it for more than his "share". We have discussed a little that im will have a discount for sure, but i dont know how big. Probably not that big.

2) You are right that i dont really understand the investment too well. Thats something that bothers me. But at the same time if i want to go into real estate, i need to start somewhere. I will always be a newbie when i start. So i thought this might be a good way to start even though i understand that its quite uncommon to start with such a big investment obviously.
How big of an investment would you recomend to start with if the 300k is not money i need, and i will continue playing poker on the side and hopefully be able to grind out about 300k next year as well, and on top of that have some other money available right now as well?



3) Could you explain the exact reasons why you wouldnt do it?
Thanks alot for the advice of not paying everything up front. It sounds like a very good idea to work out some deal that makes him active in trying to help me out in best way possible.


Some other questions too:
Do you think the mindset of a pokerplayer is something that you can use in the real estate business?
Do you think one can start with this business at 20% work rate, and playing poker the other 80%, and still learn it good and become successful at it?
My thinking was that i could try it out and do some kind of fading with my pokerplaying. Then if i liked it i could just develop this business or if not i could sell it and go on to other stuff. What do you think of my plan?


Last i just have to say that it is so damn good to be able to read and take active part in threads and discussions like this one. To get hints and ideas from objective people, no matter if you agree or not to their opinions. That is just invaluable. Well, thats what forums are for i suppose, but i just couldnt help myself writing it.

Thanks,


Sehr Gut

Its not the dollar amount that concerns me so much as that you dont' really understand the investment too well. Personally, I'd probably want to start with about $30k or so and give REI a try for a bit before committing so much more. What if you can't stand it? REI is usually an active investment - its a business that'll have to be run every day.


I don't invest in businesses I don't understand how to operate.
I don't invest in businesses where I'm the only willing buyer without getting a steep discount.
I don't invest in simply order to help out people that I'm fond of.
I don't invest substantial amounts of money into a new idea.
I don't work with partners for the most part.
I don't invest in businesses where it is impossible to calculate the return. In this case, you don't understand the risks, so you can't calculate your return.
Its not worth that much, but on a gut feeling level, this just doesn't seem like an amazing opportunity for you in your situation.
There are probably lots more reasons that I can't think of right now.

Plus there are a ton of unknown variables, and issues that you don't know to ask about, nor have the background to understand. The biggest one that comes to mind is the debt structures and their ramifications.

Hard to say. You don't have to be a genius to excel at either poker or REI. But in either you have to be diligent, hard working, and willing to hone your craft. One problem that I've noticed with poker player landlords is that when they pull down $100/hour at NLHE it becomes hard to muster the will to chase tenants for $500 rents.

yeah, this seems like a doable plan. Almost everyone starts in REI while working full time.

spex, I found this statement on a REI page and wanted to know your thoughts.

"There are 4 main benefits to owning real estate:
1. Appreciation
2. Depreciation leading to tax benefits
3. Principal pay down
4. Cash flow

Charts will continually show that #1 and #2 are the keys to creating 'TRUE WEALTH' in real estate, and far out distance the last 2 in the short or long term."

Rich Weese


Would you disagree with the last statement? I know you favor cash flow over appreciation but could you elaborate on your view of appreciation in REI. Would you consider that investing for appreciation is riskier but also potentially more rewarding?

Wow, i think this guy is a joke. IMO, his method of buying break even properties and hoping for appreciation is stupid.

however, he is not completely wrong either. In a way I invest for appreciation as much as if not more than for cash flow. The difference between us is that he is a PASSIVE investor and I am and ACTIVE investor. What he does is buys properties with little down, and hopes the appreciate. I've made my thoughts on that method clear numerous times (low yield, time intensive, and essentially gambling).

What I do is find properties that I can increase the value of by increasing the income that they produce. I FORCE appreciation. I do that buy increasing the net income of my properties. The cool thing about that method is that when I increase my NOI BOTH my cash flow AND my appreciation go up.

So lets say that I find a 15 unit building that currently rents for $400/mo for 2brs and is pretty crappy. Crappy owners usually are not able to keep expenses below 55% because they're too lazy or dumb to operate their properties correctly. So we're looking at $43k NOI and I get the place for $430k. I get it at a 10 cap because of the condition and tenancy problems.

Now lets say that I can rent those units out S8 for $500/mo. So I fix them up and do that. And lets say that I can make some operational improvements and decrease expenses down to 45%. Now my NOI is $66k and because its now nice and functional I can sell it at an 8.5 cap. So the new valuation would come in at $776,000.

So I forced the property to appreciate by $346k. I also increased my cash flow from $43k less debt service to $66k less debt service. depending on return on equity, I might want to keep the property, sell it, or refi.

My way beats Weese's by a long shot. IMHO.

spex, great response and good example. thank you.

In looking to sell notes on non-real property, is it better if the title is in my name (transferring it to the note purchaser) or the debtors?

In my state, the title must be transferred to the debtor's name. I guess it depends on your state laws. I think that this is really a legal question, and my feeling is that the answer will depend heavily on the disposition of your state's laws regarding these ownership issues. So perhaps lawyer would be a better person to ask.

how do you find real estate investment clubs? just search on google?

yup.

spex, I can't get your numbers to work. I can get it to work as a 20 unit building rather than 15. Is it me or the numbers?

Its the numbers. i think i started out using a 15 unit example, then I calc everything using 20 units. Dumb.

how do you determine which are good or not? just go to them? what about the ones that require an annual fee?

I joined them all. Annual fee is about $100 per club. I regularly attend 4. Not a huge investment. True, some are better than others. But they're all worth the $100/year.

That's a relief. Some of the concepts and calculations you have discussed in the thread were new to me and took me a while to get a good grasp of things. Now that I feel comfortable with the numbers, I was afraid I had a calculation wrong.

Spex (and anyone else who wants to weigh in), I posted awhile back about a 4-unit property that I’m looking at and would really like your thoughts. Link to original post.

My biggest concern is that it is completely vacant at the moment and is located in an area where there a high number of other multi-unit properties. Assuming my assumptions on market rents is pretty accurate, I think it is a fairly good deal. But I’d love to get some advice as to how to handle such a situation (e.g. how to do market check the rental rates, any ideas for renting up a vacant building quickly without starting some kind of price war, etc.).

Any advice would be greatly appreciated.

I saw the suggestion on the first couple of pages but haven't waded through all of the others yet - you say if you were to start now you would start with mobile homes and that you have a guy that buys them at wholesale. Any quick tips on where to find these for wholesale? Thanks

Get the book Deals On Wheels at www.lonniescruggs.net it has all the info you need.

Not necessarily. negotiations are similar to a NLHE hand - you gotta plan it out from the beginning. Sit down and figure out where you want to open, considering that you have a target price and a bottom line figure. Then plan out your negotiations. You have to know what points you'd be willing to concede and what you want to ask the seller for. Basically you're guessing on a lot of this, and knowing your opponent's motivation helps a lot for figuring your moves.

You gotta plan it out so that every incremental move up is smaller than the last move. example, you gt $50, $65, $70, $71, not $50, $60, $70, $75. That makes your opponent feel that he's squeezing the last dollar out.

Guess. That is the only way if you don't know the market too well. Maybe the local REI club might have some info on time on market, etc.

Depends largely on the repairs. If its all paint, carpet, countertops, 30 days easy if your guy is moderately SLOW. I'd expect to have 4 units repainted & carpeted in a week tops. Thats 2 days painting, and one day per unit carpeting. But I've already got relationships with people to do that work.

Nope, b/c you can't tell how realistic it would be to win an appeal. Besides, high expenses HELP you when you're buying and HURT when you're selling.

not sure what you mean by that exactly. The lender will want to see that you have enough income to foot the bill on the building during rehab and lease-up.

I'd probably plan for a 7% mortgage to be safe. And maybe 3% on closing costs. Otherwise, fine.