I've gotten a few emails from students over the past couple of weeks that basically asked me the same thing in a nutshell: "What is the key to success in real estate investing?"
The answer is pretty simple: Money!
Without money, particularly OPM (Other People's Money), you'll have a hell of a time buying passive income real estate. In fact, it'll be impossible to buy real estate unless you come out of cash 100% for all of your deals. And that's not only unlikely, it's a piss-poor way to leverage your money if you happen to have this type of cash lying around to begin with in the first place.
The first thing you're probably thinking about are banks and lenders. While this is all well and good, it's not where I get my money for real estate. (Surprising, isn't it?) The qualification standards for getting a bank loan from a bank like Bank of America, for instance, is so strict that I'm not really sure who would ever qualify for that type of mortgage, especially for a commercial investment.
I've been investing for a long time. Most property deals I put offers on (and eventually close on) reveal information about their primary lender. Of course, I'm dealing with commercial property in every instance but I have yet to find a deal where the seller has used one of the "Big Boy" banks like Chase, Bank of America, US Bank, etc. Most instances, these sellers have financed through a small local bank or through a private lender. (In the majority of the cases, it's the latter.)
What a lot of people don't know is that private lenders act as "small banks" but even better because their lending criteria isn't next to impossible to meet. In fact, qualification is a cinch in comparison to traditional banks. Since lending is their primary (and usually exclusive) means of cash flow, the more loans they dish out, the more money they make on interest and on loan transfer/sale agreements with small banks.
Only the naive real estate investor actually thinks he or she will get a bank loan for an investment property. All of us experienced investors understand that, well...almost nobody qualifies for a commercial loan through a regular bank. Bottom line: don't waste your time!
I've had loan success with small local banks in different regions of the country, especially when investing in Florida and parts of the Midwest where they're the only ones that believe in their economy (while everyone else in the country believes they're on the verge of a state bankruptcy). I've even gotten LTVs as high as 85% with a local bank and yes, even in states like Michigan!
But the "secret" to getting money (and even 100% LTVs...especially 100% LTVs) is going to be through private investors. Period!
Nobody needs to twist an investor's arm to tell him that the economy is getting better by the day and that real estate is the place to invest...unless the investor is pretty stupid in which case, he's probably not a real investor.
So, if you have a property in your "farm" area (or area of the country where you want to invest which can be either local to you or 3,000 miles away from where you live), if you present a strong enough "mini" business real estate plan/proposal, you'll be able to get 100% of the cash needed to acquire your property.
Without a bank. Without a lender. Without a credit check. Without jumping through hoops. Without a loan/mortgage.
Sounds like heaven on earth, doesn't it?
Except there's a small catch. If you come to the table with nothing except for a "mini" business plan/proposal and the promise of executing a kick-ass management strategy while the investor sits back, you have to split the deal with the investor. Pure and simple.
Now more than ever, there is a demand for property. Especially among the "mass wealthy" (like your doctors, dentists, lawyers, etc.) who have the cash but have zippo/zero time in executing a deal or managing anything.
And how awesome would it be for them to come across an investor like you who can basically "do everything" for them while they just write a check? And they get to financially benefit from both equity gain and cash flow on a property deal? Without doing anything at all but writing a check??
Now most of you know that with my new Apartment Building Cash Flow System 2015, I'm a strong advocate for small apartment buildings of 24 units or less. And, in many areas of the country, this means you're dealing with properties that are less than $500,000.
One building I'm going into contracts on this week was listed at $260,000 but since I'm going in with 100% cash with a private investor, I was able to get the seller down to $190,000 for a quick 2-week close (which you can easily do with an all-cash offer).
What kind of building can you get for that type of money?
I'm not going to tell you exactly where it is but I will state that it's in the Midwest, it's 28 units, but it's severely underperforming at a 35% occupancy. (You can get underperforming properties but it's never recommended that you get a 0% occupied property anymore.)
So, what type of cash flow is a POS property like that even worth?
Right now (upon immediate acquisition as a 100% cash-out deal), we're looking at a $2,505 monthly positive cash flow. Once I bring the occupancy up to 95% within 1 year, we're looking at a monthly cash flow (after expenses and taxes) $9,479 per month!
And this is for a Class C- POS property in a less-than-savory neighborhood.
But after I presented the "before-and-after" numbers scenario to about 4 different investor partners I use for many of my deals, all 4 of them wanted in on the deal. I had to pick and choose which, unfortunately, put me in a bad situation with 3 of the 4. (This is why you need to select your investor partner wisely and pick only 1 off the bat.)
The good news for the other 3 is that, because there is at least 8 - 9 more properties that fit the above criteria in that same general area, I'm in the process of building new business plans for those other deals so that I can essentially "sell" the deal to the other 3 investors.
I put $0 out of pocket for each deal and they will be "financed" at a 100% LTV with all cash and no mortgage through private investors.
This is my newly discovered "niche" for getting private money and cashing out the deals with 100% cash. They are easy to "sell" to private investors even though they are in "shady" parts of town because guess what? They never have to deal with the property. Ido. You do! Everyone else but them!
How was the $9,479 per month deal set up?
Here's what I arranged:
1) 60% goes to the investor partner; 40% goes to me.
2) These are 10-year deals which are highly unusual for investor partnerships (which are typically 3 to 5 years in length); the stipulation is that I will cash them out on just their investment plus a 10% straight-line interest on the original cash they put into the property.
3) The investor partner will make approximately $633,000 in cash flow over 10 years PLUS will get the $190,000 back with 10% interest.
Why wouldn't they want to "cash out" by selling the property and taking out the gained equity?
Because of these reasons:
1) The property is in a shitty part of town and...truthfully (if the building is still standing), it won't ever sell to another investor. If it does, it'll be for a fraction more for what we paid for it...if we're lucky. Why do this when I can keep raking in the cash flow?
2) This allows the investor partner to be completely off the hook without having to wait for years (in most cases) if ever to sell that type of property. They'll get their cash flow, their money out of it, and walk away without breaking a sweat.
3) I get the property. It becomes mine 100% with or without a loan attached (depending on how well I managed my cash flow on this and other properties) and, conveniently, rents will nearly double in another 5 years after the property becomes mine. Providing I don't have a loan on the property, I'm looking at a monthly cash flow of at least $15,000 on this same POS property that's "worthless" on the real estate market as a property sale but is a freaking cash cow that would make a drug dealer drool. (Actually, at that time, I could probably sell the property to a drug dealer who probably lives in the same building!)
And this is how you get rich in real estate.
1) You'll get OPM on a POS property that no other investor wants by paying 100% cash for it.
2) You'll cure any vacancy problems, start bringing in a kick-ass cash flow, and keep your investor happy while he never touches, manages, or deals with the property.
3) You cash out and separate ways after 10 years. Everybody is happy and you get the property 100%. Even though it's a POS...who cares? It's making $15,000 a month free and clear.
And here's the clincher...
You do this times a minimum of 10 deals.
Unless you're mentally challenged (and even Rain Main can calculate this), you can see what 10 x $15,000 a month can bring you.
What is that a year? That's $1.8 million a year, bozo. From a pile of POS don't-want properties in the "shady/questionable" part of town that you can get for cheap that you ain't even paying for!
But you have to know how to tap into this money. And I'm about to show you right now.
I have an upgrade on my Raising Capital Complete System for 2015...but that's not even the best part.
I have my last ever Raising Capital Mentorship Group which is actually a new group. It's a 10-week ass-kicking group that will teach you every trick in the trade on raising quick money using the exact cash-flow scenario I outlined above.
And my deal?
Well, I'm offering a deal on both the course/system and the group. I'm so sick of my students not investing in the course materials for my groups before taking a mentorship so I'm packaging these two (2) essential elements up into one kick-ass deal that will probably make you crap your pants.
Am I really serious about this being my last Raising Capital Mentorship Group?
In fact, for those students who have been calling my office, bugging Lea about the "new list" of groups for the remainder of the year well, guess what? There is no list. I told you folks that I was taking you through the middle of 2014. And here we are. In the middle of 2014...or just about damn near anyway. And I have no more groups slated once we hit mid-year.
Other than my Distribution Profit Mentorship Group (starting tomorrow), this last Raising Capital Mentorship Group (10 weeks) starting on May 28th, and a Change Your Life Mentorship Group starting June 11th.
And that's it!
Does this mean I'm never doing mentorships again? I don't know. I don't want to commit to anything so...rash. But it looks like I'm done with them for now and for the rest of this year as far as I can tell.
(I do have something freaking incredibly amazingly awesome coming up in September! I can't wait. But my lips are sealed about this "top secret" thing that's happening until the first week of June.)
So, what's the "deal" with this Raising Capital Mentorship and the 2015 upgrade/update of the course?
This deal ends very soon! (Try Friday.)
If you have any questions, just call Lea. You know the drill. It's preferred that you go to http://www.monicamain.com/rc_offer
to check out what's going on first before eating up Lea's phone time.
See you at the top!