I love real estate investing. I like talking about it. I like schooling it. I like doing business. In this blogI wishes to share with you a very important topics, money as it pertains to get real estate business done. I’m going to peel back some blankets in this blog. Some estimates” youre supposed to do now” wouldn’t customarily sound like. I want to expose some of the errors, some of the fibs, as well as share with you really how to do it right.

Getting Started

The 30,000 Foot View of Money

So often I find when I talk to parties that are firstly getting started, or those that are really trying to get into the business, they always share with me that their biggest edition, the most difficult edition they have is money.

They tell me that if they have the money we are able to do a lot of business, and that they’d make all this money. I would argue that if you took an public opinion poll of 100 people right now off the street, kind of like a Family Feud ,”Survey says ,” the majority of countries would tell you that if they had, say, $500,000 in their bank account they could be successful at real estate endowing because that’s the biggest problem, money. They is usually point to ,” Hey, there’s three residences down the road that are great deals right in my own proximity. I exactly don’t have the money, but if I did I’d rip them up, and I’d resell them. I’d make all this fund .”

The Real Problem

I am not convinced that money is the biggest problem in real estate investing. In insight, I would indicate the most serious problem is great deals. Great transactions are what’s missing. I have a lot of friends and accompanieds that are giving money for real estate investors, and they always tell me their great problem got nothing to do with their lack of money. It’s the limited availability of great deal that students or investors bring to the table. That they’re structured accurately. That they’ve been done in such a way where they increase the risk, but maximize reinforces. Great business is what’s missing.

Great Deals

Now, great deal presumes something really important, that somebody is well aware a great deal is. Find the great deals, structuring them, negotiating them, putting them together with the privilege paperwork, yes, that is incredibly important. It likewise means you have to know what they look like. One of the most serious problem with money, when you have access to a lot of it for real estate, is it can enable you. Money can be an enabler. It can enable you to produce bad decisions that can be very costly.

Money is really not a problem when you have great deal. Money is only a problem when you have marginal business.” Theres spates” of marginal business out there. You can find tons of bad deals. They’re everywhere. The objection is know great deal and get developing. What I’m going to do now is I’m going to break down these different options because this goes into a whole new subject matter that I’m really passionate about. Let’s talking here bank money.

Bank Money

Bank money, genuinely, really interesting. Banks loan up to 10 intervals as much money as they have in their tombs. Here’s what I signify. Let’s say they’re going to give $100,000 for someone to buy a house. Technically that bank only has about $10,000 in their bank account to give this amount of money. How does that work? Well, welcome to our fiscal method. Banks throw 10 intervals as much as they have in situates, so that would be like you if you have $10,000 in your bank account right now giving your neighbor $100,000, and get interest on $100,000 when all you really have is $10,000. That’s our banking institutions in literally three sentences.

Here’s the charm of bank fund. Watch this. If the transaction get bad, and the bank only get, say, $50,000 after, says, a foreclosure or something, did they lose any money? They misplaced perhaps the best interest remittances, but did they lose any of their principal? Uh-uh( negative ). No. In insight, they’re still ahead $40,000. They’re okay. They’re fine. They give this $40,000 back to the Federal Reserve. The Federal Reserve is neither federal nor a propriety. Different topic. I The charm of bank money is that if estimates go wrong no one’s really hurt. Now, yes, your credit may be hurt , no money is actually misplaced, and that’s one of the great things about bank money.

The Issue With Bank Money

Now, as” youre supposed to do now” know the problems with bank money are pretty simple. Everybody knows those. You have to have ascribe, and you have to have a down payment in most cases, and all sorts of interesting thing. Bank money has it challenges, but what I like about it is that if money is lost no one’s really hurt. Now, why is that so important? Because with real estate investors there is a inclination to want to go find private money.

Private Money

Private money is where you have a friend, own family members, you have an rapport, somebody is going to take money out of their 401 K or just out of their savings, and they’re going to give that money to you. That’s what private money is. My flavor and my any problems with a lot of the person who try to raise private money is I don’t believe that they should be doing it because they’re not successful enough to be playing with somebody else’s fund. Because when you grow private money, and if you lose that money all of it’s lost. It’s not like a bank where there’s leveraging there. This is other people’s livelihood.

Bad Deal Example

The number of business that I’ve seen go south where private money parties have lost money it’s merciles. There’s a transaction today that’s going to tariff auction here in my region. The being had get an $80,000 private money lend from a neighbourhood person who owned a plumbing corporation here, and it’s going to tariff auction for $6,000. Now, there is an opportunity be brought to an intent auction up about $10,000. I know those amounts are small, but this house is in the ghetto. The private money lender’s mostly going to lose all $80,000. That’s brutal. I am not a huge desire of private money for parties that aren’t already really good at the business and know what they’re doing.

Upsides to Private Money

Once you are good, and you do know the business well private money can be nice.
It is available for down payment. If you’re trying to get a bank loan for the majority of it, perhaps you need help with a down payment. Perhaps you can help with rehab frequencies. Perhaps the bank will give you the lend, but you need the rehab money. Perhaps you need help with the entire counterbalance. I’ll defined entire counterbalance here. Where it’s secured money against that real estate, and that can be good.

Private money, if they are unable salary 6 to 10% on their coin that’s a lot better than, say, a lot of other opinion options they may have. It’s not that private copper can’t be a win-win for, say, your uncle’s 401 K.

Be Smart

The difference is you have to be wise about it. I am really concerned when I ensure newer investors trying to raise private copper because they don’t know what’s going on hitherto. Often occasions it’s those agreements that go south because like I said earlier in the video, copper can be an enabler. It can help individual get into a real estate treat that’s a lousy deal they should have never get into. That’s what I like about bank copper is that even if happenings go wrong no one’s really hurt, whereas with private copper parties are hurt when happenings go south. There are other options, by the acces, so let’s talk about those real quick.

Options

Now, if you’re just getting started, and you can’t get a bank loan, and you don’t want to play with your uncle’s 401 K and his subsistence for the future, what do you do? Well, I necessary talking here two very well prepared options.

Option 1 Hard Money 😛 TAGEND

It’s kind of like private copper, but it’s people who throw copper to real estate investors. They’ve been doing it a long time in many cases. I want these parties. These people know as much about real estate investing as anybody you’ll ever pandered in many cases. Now, they are not able to wishes to educate you anything, but they know what’s going on. It’s because they’ve been burned a lot. They’ve lent copper to other investors and they’ve learned video games. Hard money lenders often throw somewhere in the range of about 65%. Sometimes up to 70%, but often 65% of value.

The Problem

Now, right there that already forms a huge, gigantic hurdle for innumerable parties. Spotting a treat at 65 pennies on the dollar. That’s a good deal, isn’t it? What do those amounts look like? Well, for a $200,000 house this is gonna be, what, $130,000. As you go up it even get increasingly difficult because now you’re starting to really get a plagiarize of a treat. At $100,000 that’s a little more reasonable to get onto at 65%, although it’s still challenging.

The Upside

Hard money is a great option because they’ll give you based on the treat. They are real estate investors, so they know what they’re get themselves into. It’s not a private money lender like your cousin, who you’re using their copper and they have no thought. Hard money lenders know what they’re doing, and they’re likewise very useful sometimes as you’re going through a deal.

They may be able to help out with the honour of a contractor or those sorts of things because they genuinely know the game. In point, there’s a neighbourhood hard money lender in Orlando that he’s been in the game forever. He just really knows his element. I really like this alternative for new investors because if you can do some of these agreements, find good deal that fit for a hard money lender, use their copper, do the whole deal, that can be awesome. That gives you a great education, and “youre supposed to” aren’t going to get hurt because the hard money lender would have never likely lent you the money if the treat was a bad deal. There’s already that natural checks and equilibriums. Does that make sense?

Transactional Funding

You may have some of my other videos that I’m not always a fan of buying it with real copper, tying it up, and reselling it. What’s another option? Transactional funding. This is a relatively new one. This has only been around for about five years old, maybe a little bit less. This almost brand new various kinds of substance. Transactional funding.

What’s that? These are parties that throw coin because you already have another purchaser lined up to close. Now, you still have to buy it, so perhaps you buy it at $100,000. That’s your buy overhead , but then you’re selling to the new person or girl for, say, $120,000. That’s the sale price , so you may have to own this for, I don’t know, a few weeks, three days, sometimes even precisely an afternoon. You buy it at $100,000 and resell it to them for $120,000. The transactional funder is shielded because they already know this thing is locked and loaded.

Typically this is necessary nonrefundable earnest money. All the stints have to be through on their province. Often easier if the new buyer’s salary in all fund versus a give. This is great very, and I genuinely, really like it when new kinfolks are applying this proficiency. They get the treat under contract then they follow locate a purchaser, and then” theyre utilizing” transactional money. Because such substances often overheads anywhere from like 2 to 3 %. On this treat it would probably be like $2,000 to $3,000. Depending on the area and some other things.

The Upside

This right here is an awesome alternative for new kinfolks because it allows you to get into the business without having a ton of jeopardy suggested because you’ve already got the new purchaser in place, and you’ve already learned all the skills about find the treat, and then get rid of the treat. Guess what? In the real world this part’s huge. If you close on a negotiating with hard copper, and you can’t find a purchaser six months down the road that’s a real difficulty. The nice reason about transactional money, you’ve already got the buyer. These are great options for parties that are firstly getting started, but there’s more.

Creative Financing

There’s also this thing called artistic asset. Inventive financing is what I do a lot. Inventive asset is expending the existing element on the belonging to structure the funding. I use this a lot when I’m taking on copes for long term rentals.

Owner Financing

The firstly is owner financing, which I precisely established a treat like this under contract on Thursday. Owner financing is great. You get the owner to be the bank, so you pay them every month. You can give them an interest rate. A low-pitched interest rate, high, up to you. That’s all structured in the negotiation. The marketer ripens the bank.

Example

In the suit in the belonging I put under contract on Thursday, here’s what happened. The being owned the dwelling outright. No give against the belonging, so we worked out $93,000 was how much was travel be the owner financed give. I did it at 6 %, but that’s because it’ll payment real nice. The total costs like $750. It’s going to rent for perhaps $1,200, perhaps $1,300 depending. A fortune of great element on that treat. The value’s awesome. The reason is I didn’t have to go to get a bank loan for it. I was able to use the owner as the bank, but they’ve lived there. They know the dwelling, so they are aware of a lot of the risks involved in it. It’s a slam dunk.

Subject To

Another thing you can do is called a subject to, and that’s where you merger an existing give. You merger a bank loan that somebody else got on their dwelling. I get dealers asking me quite a bit ,” Why would you take over my give when you have been able got to go get a new one ?” I tell them. I say ,” Look, it’s because your give got a lot lower interest rate than mine “would’ve been” .” If you go to a bank as overseas investors they jack up the interest rate, but it’s a lot lower of an interest rate if you buy the dwelling to live in because banks have done their numbers. Those that live in the home, they have a lower default balance than investors do.

Subject to

You’re not actually going to a bank.

You’re not going to a hard money lender.

You’re not going to a transactional funder.

You’re not get private money.

You’re not doing owner financing.

You’re literally taking over the existing mortgage.

Plenty of Options

I hope what this blog has shared with you is that there are plenty of options, but in most cases the key done a great deal structured accurately, and then your money alternatives, or your fund alternatives open up. I’m just not a big follower of somebody going out there and trying to do transactions when they don’t know what they’re doing. Specially if you’re going to lose somebody else’s fund. It’s one thing to lose your own money in a bad asset decision. It’s another thing to lose Grandpa’s money.

This goes beyond real estate very. You’ve watched these video videos like Shark Tank where people will spend their life savings. I protected one the other day. He spent like $300,000 to start this business, and then when they get in front of members of the panel of these sharks they all look at the business, and” theyre saying “,” I don’t think it’s a winner .” That’s a problem.

Know What A Great Deal Looks Like

You see, that goes back to the great deal happening I was just talking about in the very beginning. If you have a great deal then there’s a lot of funding that gets thrown at it. It’s so much better to know what a great deal looks like. In this case I hired the lesson of Shark Tank. Know what a great business looks like that’s going to make good fund, and have good anticipations, and good ability. Better to know that first before you start lowering your entire life savings into. Does that make sense?

Get Some Education

Know what you’re getting yourself into. Educate yourself. Now, if you have to spend some fund for education I believe that’s fund well spent because that fund will be a lot less than the expenses you’ll memorize on a bad deal.

One real estate deal can cost you one tonne of money.

Some education, is it going to cost you some fund? Sure, but it’s the right kind of expenditure because now you’re getting yourself into a position where you can be wise with government decisions you represent, and that really starts with government decisions about money.

If you want fund for real estate departure taken together some great deals. How do you do that? Get developed. How to find them, how to formation them, how to get the right paperwork in place. Get that education in you.

You can start off simple. You can start off exclusively putting buy under contract and flipping them, and never use any fund like this. You don’t even have to. A slew of the person or persons that we school, and coach-and-four, and mentor, that’s what we do. It’s baby steps. We start them with some smaller transactions. Stimulate $ 6,000. Make $ 10,000. Make $ 20,000. Not a lot of fund before they dive into the bigger substance, and then eventually you may become this stone idol that invokes tons of private money.

Mobile Home Parks

We have one of our students who now does these huge mobile home ballparks. Three million plus, and he invokes millions of dollars to buy these happens because mobile home ballparks, a lot of banks won’t lend on the mobile homes. They’ll exclusively lend on the actual region, and they usually exclusively throw about 60 to 70% on countries of the region, so a big chunk of a$ 3 million mobile home ballpark buy is actually private money.

This guy exclusively flat out knows his cloth. He’s been through our proposed. He’s made a lot of fund with us. He went on to make a lot of fund after working with us. Actually knows his cloth. Super dependable. You truly can trust such person or persons, so him developing fund is not nearly as difficult. He has a great deal. He can present what the numbers are. He can show his track record. I also feel confident such person or persons, where reference is invokes that kind of fund, is not going to hurt a knot of other people.