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Finding Private Lender - REITC 6-8-10

How To Find Private Money
JUST BECAUSE IT GLITTERS, DOESN'T MAKE IT GOLD

Just because you can buy a house a lot cheaper than it sold for a couple of years ago does not necessarily make it a great deal.  Don't get me wrong, it doesn't necessarily make it not a great deal either. If it were true, we all should have been buying General Motors at 70, 60, 50, 40, 30, 20, 10, 5, 1...

But, just as we lost sight in the recent past of such things as real value, cash flow, and skin in the game in buying houses, let us not forsake prudent analysis and perspective in our desire to take advantage of what we perceive to be bargain basement bottom feeding.

Indeed, the only thing preventing this mad rush to pick up houses at enormous discounts is the reluctance by the banks and mortgage companies to finance investors as easily as we think they should in this "once in a lifetime opportunity" climate.

Have we learned nothing from the too good to be true mortgage fiasco of the last several years?  Do we not remember the NINJA  loans?  NO INCOME NO JOB NO ASSETS?  What about the zero down loans that were the ultimate leverage deals?  Please don't forget the "Liar Loans."Doesn't the mental attitude of "I know better but this time it is different "sort of ring a bell?

Consider the investor that buys a house for a real bargain, say $200,000, that sold for $350,000 in 2005.  Is he really buying it at 57 cents on the dollar?  Depends on how we define the dollar.  Upon investigation we find that the owner, because he could not sell the house, rented it for $1,800 a month, which was less than his note.  He figured it was better to rent it and recover that much instead of letting it sit empty and costing him $3,000 a month.  He was correct.  However, now that the rent has been established at $1,800 a month, which puts the retail value around $180,000.  So, the $200,000 is higher than the current retail value.

Think about it.  For years real estate moguls have taught us that the monthly cost of a house is around 1% a month.  If that is true, doesn't it make sense to estimate the retail value of a house at the inverse of that guideline? 100 times monthly rent!

If you are going to live in the home...ALL BETS ARE OFF.  Then you have emotional issues with you or your spouse.  You can't look at the house the same way if you are emotionally involved with it.  BUT, if you are not going to live in it, then you must find out what it will rent for.

What is the point of all this?  ALL THAT GLITTERS IS NOT NECESSARILY A GOOD DEAL.  You must find out what it rents for or what it will rent for, multiply it by 100 and that is the approximate RETAIL price.  Do you want to pay retail?  Not if you want to cash flow the house.  So, that is the starting point of your number crunching with the APPROXIMATE REAL RETAIL VALUE (ARRV), which in my classes I call ARNIE'S REAL RENTAL VALUE.  These names are to be used instead of ARV, which today pretty much means ANY RIDICULOUS VALUE ...that the seller hopes he can get away with.

Finally, it you are going to buy a commercial property, one of the first things you would want to know is what is the capitalization (CAP) rate.  Doesn't it stand to reason that if you are going to buy a house for the same reasons (i.e. cash flow), you would want something closely resembling that to give you information as to how profitable it will be?  Return on Investment, for example.  ROI.

Feel free to call me, email me, go to my classes, or go to our web site for more information on what I have covered.  www.texasbuyandholdem.com

Arnold M. Abramson, President

Homerica Real Estate Services, Inc.

Valugistics Corp.

This e-mail address is being protected from spambots. You need JavaScript enabled to view it

214-733-8889 ext 303

 


 

Arnie Abramson has been buying and managing houses within a 300-mile radius of Dallas since 1991. He is a frequent speaker at many of the investment clubs in the Dallas Fort Worth area as well as a speaker for investors in Washington, Oregon, California, and New York-New Jersey. He is past president of the Texas Real Estate Investors Association (TxREIA) and considered a guru in owner financing houses under current Texas law.

 

Arnie is president of Valugistics Corp., that offers investors houses that are already rented and in this market even offers seller financing to investors for them.

 

Homerica Real Estate Services, Inc., is a 20 plus-year old full service realty company that specializes in property management.

Texas Buy and Holdem is the descriptive name for the series of classes dealing with rentals, lease options, and owner financing. Why, how, and turnkey alternatives are presented as well as financing and property management alternatives.

 

Last Updated on Sunday, 06 September 2009 09:27
 
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