The False View of Money

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

They tell me that if they have the money they could do a lot of flocks, and that they’d make all this money. I would argue that if you took a poll of 100 people right now off the street, kind of like a Family Feud ,” Survey says ,” most of them would tell you that if they had, say, $500,000 in their bank account they could be successful at real estate expending because that’s the biggest problem, copper. They is frequently point to ,” Hey, there’s three lives down the road that are great deals right in my own proximity. I only don’t have the money, but if I did I’d rend them up, and I’d resell them. I’d make all this copper .”

The Real Problem

As you can tell from my tone of voice, I am not am firmly convinced that coin is the biggest problem in real estate investing. In detail, I would spat the biggest problem is great deals. Great deals are what’s missing. I have a lot of friends and acquaintances that are giving copper for real estate investors, and they ever tell me their biggest problem got nothing to do with the limited availability of copper. It’s the limited availability of great deal that students or investors bring to the table. That they’re organized suitably. That they’ve been done in such a way where they increase health risks, but maximize honors. Great spates is what’s missing.

Great Deals

Now, great deal presumes something really important, that someone is well aware a great deal is. Detecting the great deals, planning them, negotiating them, putting them together with the privilege paperwork, yes, that is incredibly important. It too means you have to know what they look like. One of the biggest problem with copper, 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 form bad decisions that can be very costly.

You’re about to discover is where to start with the process of moneyfor real estate. It starts with a great education, and the ability to find great deal and formation them. Because after he had great deal then the money alternatives open up, and that’s the key to this.

Money is really not a problem after he had great deal. Money is only a problem when you have marginal flocks. There are a lot of marginal flocks out there. You can find tons of bad deals. They’re everywhere. The elude is conclusion good deals and get set. 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 talk about bank money.

Bank Money

Bank money, genuinely, really interesting. Banks loan up to 10 spans as much copper as they have in their graves. Here’s what I entail. Let’s say they’re going to give $100,000 for someone to buy a chamber. 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 financing plan. Banks give 10 spans as much as they have in hostels, so that would be like you if “youve had” $10,000 in your bank account right now giving your neighbour $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 elegance of bank copper. Watch this. If the cope grows bad, and the bank only get, say, $50,000 after, says, a foreclosure or something, did they lose any coppers? They forgot perhaps the interest costs, but did they lose any of their principal? Uh-uh( negative ). No. In detail, they’re still onward $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 modesty. Different topic. I The elegance of bank copper is that if happens go wrong no one’s really hurt. Now, yes, your credit may be hurt , no copper is actually misplaced, and that’s one of the great things about bank money.

The Issue With Bank Money

Now, as you probably know the problems with bank money are pretty simple. Everybody knows those. You have to have credit, and you have to have a down payment in most cases, and all sorts of other things. Bank money has it defies, 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, family member, you have an acquaintance, somebody is going to take money out of their 401 K or just out of their savings, and they’re going to lend that money to you. That’s what private money is. My headache and my trouble with a lot of people 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 promote private money, and if you lose that money all of it’s lost. It’s not like a bank where there’s leverage there. This is other people’s livelihood.

Bad Deal Example

The number of deals that I’ve seen go south where private money parties have lost money it’s merciles. There’s a cope today that’s going to tariff auction here in my region. The party had gone an $80,000 private money lend from a local person who owned a plumbing firm here, and it’s going to tariff auction for $6,000. Now, it may be brought to an end bid up about $10,000. I know those numerals 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 devotee 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 most of it, perhaps you need help with a down payment. Perhaps you can help with rehab rates. Perhaps the bank will give you the lend, but you need the rehab money. Perhaps you need facilitate better the entire balance. I’ll made entire balance here. Where it’s secured money against that real estate, and that can be good.

Private money, if they are not able deserve 6 to 10% on their coin that’s a lot better than, say, a lot of other resource alternatives 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 reassure newer investors trying to raise private copper because they don’t know what’s going on hitherto. Often period it’s those slews that go south because like I said earlier in the blog, money can be an enabler. It can help mortal get into a real estate cope that’s a lousy deal they should have never gone into. That’s what I like about bank copper is that even if events go wrong no one’s really hurt, whereas with private coin parties are hurt when events go south. There are other options, by the course, 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 miss like to talk two very well prepared options.

Option 1 Hard Money :

It’s kind of like private money, but it’s people who generate money to real estate investors. They’ve been doing it a long time in many cases. I enjoy these parties. These people know so much better about real estate investing as anybody you’ll ever converged 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 generate somewhere in the range of about 65%. Sometimes up to 70%, but often 65% of value.

The Problem

Now, right there “that they’re” makes a huge, gigantic difference for innumerable defendants. Detecting a cope at 65 pennies on the dollar. That’s a good deal, isn’t it? What do those numerals look like? Well, for a $200,000 mansion that would be, what, $130,000. As you go up it even goes more and more difficult because now you’re starting to really get a steal of a cope. 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 cope. They are real estate investors, so they know what they’re going themselves into. It’s not a private money lender like your cousin, who you’re using their copper and they have no hypothesis. Hard money lenders know what they’re doing, and they’re likewise very helpful sometimes as you’re going through a deal.

They may be able to help out with the reputation of a contractor or those sorts of things because they surely know the game. In detail, there’s a neighborhood hard money lender in Orlando that he’s been in the game forever. He just really knows his scum. I really like this option for brand-new investors because if you can do some of these slews, find great deal that fit for a hard money lender, use their copper, do the whole deal, that can be awesome. That is giving a great education, and “you’re supposed to” aren’t going to get hurt because the hard money lender would have never perhaps gave you the money if the cope was a bad deal. There’s already that natural the examinations and equilibriums. Does that make sense?

Transactional Funding

I’m not ever a fan of buying it with real fund, 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, maybe a little bit little. This almost brand new various kinds of litter. Transactional funding.

What’s that? These are beings that hold money because you already “have another” buyer lined up to close. Now, you still have to buy it, so maybe you buy it at $100,000. That’s your acquisition price , but then you’re selling to the new person or daughter 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 exactly an afternoon. You buy it at $100,000 and resell it to them for $120,000. The transactional funder is safeguarded because they already know this thing is locked and loaded.

Typically you need nonrefundable earnest money. All the stints have to be through on their country. Often easier if the new buyer’s remunerate in all money versus a lend. This is great exceedingly, and I surely, really like it when new tribes are utilizing this procedure. They get the slew under contract then they grow locate a purchaser, and then “they’re using” transactional money. Because this litter generally overheads anywhere from like 2 to 3 %. On this batch 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 beginners because it allows you to get into the business without having a ton of jeopardy concerned because you’ve already got the new purchaser in place, and you’ve already learned all the skills about situating the batch, and then exiting rid of the batch. Guess what? In the real world this part’s huge. If you close on a enter into negotiations with hard money, and you can’t find a purchaser six months down the road that’s a real disturb. The nice nonsense about transactional money, you’ve already got the buyer. These are gigantic an opportunity for beings that are firstly getting started, but there’s more.

Creative Financing

There’s also this thing called imaginative exchange. Artistic financing is what I do a lot. Artistic exchange is utilizing the existing litter on the are subordinate to organization the funding. I use this a lot when I’m taking on deals for long term rentals.

Owner Financing

The firstly is proprietor financing, which I exactly innovated a batch 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-grade interest rate, high, up to you. That’s all structured in the negotiation. The dealer flourishes the bank.

Example

In this situation I put under contract on Thursday, here’s what happened. The party owned the residency outright. No lend against the belonging, so we worked out $93,000 was how often was get be the owner financed lend. I did it at 6 %, but that’s because it’ll hire real nice. The total remittances like $750. It’s going to rent for maybe $1,200, maybe $1,300 depending. A fortune of enormous litter on that batch. The value’s awesome. The nonsense 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 residency, so they understand 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 uniting an existing lend. You uniting a bank loan that somebody else got to get their residence. I get merchants asking me quite a bit ,” Why would you take over my lend when you have been able just go get a new one ?” I tell them. I say ,” Look, it’s because your lend 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 residency living their own lives in because banks have done their numbers. Those that live in the home, they have a lower default accusation than investors do.

With a 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 exiting private money.
• You’re not doing proprietor financing.
• You’re literally taking over the already existing mortgage.

Abundance 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 correctly, and then your money alternatives, or your money alternatives open up. I’m just not a big follower of somebody going out there and trying to do bargains 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 investment decision. It’s another thing to lose Grandpa’s money.

This goes beyond real estate very. You’ve watched these television identifies like Shark Tank where people will spend their life savings. I deemed one the other day. He expended 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 they say ,” I don’t think it’s a acquire .” That’s a problem.

Know What A Great Deal Looks Like

You see, that goes back to the great deal context I was just talking about in the very beginning. If you have a great deal then there’s a lot of funding that get hurled at it. It’s so much better to know what a great deal consider this to be. In this case I utilized the illustration of Shark Tank. “Know what i m thinking” a great business looks like that’s going to make good money, and have good potentials, and good ability. Better to know that first before “you’re starting” putting your entire life savings into. Does that make sense?

Get Some Education

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

• One real estate mistakes can cost you a ton of fund
• Some education, is it going to cost you some money? 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 earn, and that really begins with government decisions about money.

If you want funds for real estate then find some great deals. How do you do that? Get improved. How to find them, how to collect information them, how to get the right paperwork in place. Get that education in you.

You can start off simple. You can start off simply putting a property under contract and flippingthem, and never use any money like this. You don’t even have to. A heap of the person or persons that we mentor start off small-time. It’s baby paces. We start them with some smaller agreements. Represent $ 6,000. Make $ 10,000. Make $ 20,000. Not a lot of money before they dive into the bigger stuff, and then eventually you may become this stone adept that invokes tons of private money.

Mobile Home Parks

We have one of our students who now does these huge mobile home parks. Three million plus, and he cites billions of dollars to buy these circumstances because mobile home parks, a lot of banks won’t lend on the mobile homes. They’ll simply lend on the actual possession, and they often simply generate about 60 to 70% on the possession, so a big chunk of a$ 3 million mobile home ballpark obtain is actually private money.

This guy simply flat out knows his stuff. He’s been through our pulpit. He’s made a lot of money with us. He went on to make a lot of money after working with us. Certainly knows his stuff. Super dependable. You actually can trust this person, so him increasing money 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 this person, where reference is invokes that various kinds of money, is not going to hurt a knot of other people.

Conclusion

I possibly took that in future directions you are not able to of expected, but as you can tell I’m passionate about it. I think you should be very cautious about use tons of money in real estate before you know what you’re doing Well, I’m Phil Pustejovsky with Freedom Mentor. I actually recognize you being on this video. Check out our other stuff as well. This is just the tip of the iceberg on which is something we share on these videos. I likewise have a great capacities out announced How to Be Real Estate Investor .~ ATAGEND and Real Estate Investing Gone Bad I think you could gain a lot from that if you haven’t already read it. Other than that, glad investing, and thank you for having watching.