REcapS System for REAL ESTATE Investors
We have all gone to many different workshops, classes, and other real estate investing programs. Most of which are very valuable…well, as valuable as what you do with it after you walk out the door of the event for the last time. Has this been a frustration for you too? I have always felt that these programs present an incredible amount of knowledge from experienced investors. The problem is, after the event is over, for the most part, the student/investor is on their own. Getting the knowledge is only part of the process of real estate investing. The rest of it is getting the tools, the rest of your team, and actually getting started. A very common question asked of many exiting these events is, “What do I do now?”
The answer is pretty simple…just get started. The biggest obstacle is fear. There is no direction, at least there is no direction with confidence. So, we have come up with a way to smash through this obstacle. We have put a series of classes together with a couple of goals in mind. First, we want to teach our system for real estate investing. Second, we want to have you join us as our partners for your first (or as many times as you want to join us) deal. This way, you can build up your own experience, with us leading the way, and also reap the rewards as a partner in the investment. Oh, and as part of the class, you get a laptop computer, fully loaded with the tools we use when we invest…the ones we teach you in the classes. How does that sound?
Flip to Hold.
That is our basic philosophy. Buy, Rehab, flip, then use the profits to buy SF homes to cash flow. This isn’t really anything revolutionary. This has been going on for centuries, and will continue for centuries…as long as there are people that need to rent, and investors with money to buy, rehab, and rent. Did you notice one of the items I just mentioned…after the “as long as there are” statement? I highlighted it. “With money to buy”. That is, and has always been, one of the biggest obstacles to investing in real estate. There are a number of reasons for this:
- Sources for funding are usually hard to find.
- Sources for funding, when found, have what I would refer to as ridiculous criteria to lend (i.e…Hard Money Lenders).
- Sources for funding, when you do find them, and measure up to their criteria, have more ridiculous terms to pay them back.
- …and these source always want what they refer to as “skin in the game“…meaning, in the end, they are not going to give you all the money you need for both buying and rehab.
- On top of all of this, you are depending on the appraiser to value the property high enough to get funding.
Right now, all of this is pretty much going to give you an ulcer. I hate it when I find a great deal, only to not be able to get funding for it. So, I figured out a way to solve the problem. First though, you need to really understand what the problem is…and not be distracted by the symptoms.
The symptoms are everything I listed above as obstacles. The problem is the funding is directly attached to the property and is lien able debt. The solution? Don’t use direct asset funding. It really is that simple. We use many sources that fall into this solution, such as Equipment Lease Financing and our access to Hedge Fund Financing (to be discussed in detail in a future Post here. Wait until you see this).
Why is this so important and why is this the perfect solution? Simple. By not being lien able debt, you don’t have to pay it back right away when you flip a house…like you would with almost any other type of financing…like Hard Money, a mortgage, etc… This means, you can use these funds over again, and again, and again, and…well, you get the picture. Every flip means you make a profit, and get your principle back (you know, the money you used to buy and rehab the house). Use the principle to buy/rehab another house, and the profits to buy and rehab another house. Repeat this over and over again with each flip. So, one house becomes two, two becomes four, and so on.
Now, I know what you’re saying. If the fund you are using is a loan of some type, and it has monthly payments you need to make, how are you making them? The answer is found by using a simple practice used by developers. You take part of the original funds (loan), put it aside in a Cash Reserve, that is to be used specifically to pay these monthly payments, and you are using your loan to fund your loan payments. How much you put in this Reserve is up to you.
The results of this, is the cash reserve buys you time to develop your investments from the rest of the financing to a point where you have a series of houses (repeating), all generating profits to use for profits (cash in your pocket), buying another repeating house, buying a house with cash to hold for cash flow, and putting into the cash reserve to buy you more time to develop your investments even further. Notice how by not having the original funding tied to the property (not lien able), it offers you the freedom to do this.
As a side note, this also means that the cost for funding is reduced per door for every re-use of these funds. This System can be applied to almost anything. We like to use it for properties and for Note Buying, where the profits from the notescan be used to buy the Cash Flow Properties.
Buy with Cash, Refinance to Hold.
That is a variation of our basic philosophy. Buy, Rehab, flip, then use the profits to buy SF homes to cash flow. The difference is we are buying with all cash instead of some type of debt. This isn’t really anything revolutionary either. This has been going on for centuries too, and will continue for centuries…as long as there are investors with cash. Most ofthe time investors will want to buy all cash and leave their cash in the property thinking (incorrectly) that it is safer and doing the most good since they have no debt on their property and 100% equity. They would be wrong. Equity is where an investor’s cash goes to “die”. It has no use or value until you tap into it either selling the house (now why would you sell a perfectly good cash flowing house only to buy another) or by refinancing the house to get some of that equity out. We choose that latter. That way, we can re-use that original cash again (and again, and again, and…), but get to keep the house AND the cash flow from it. Yes, the cash flow goes down, but if you are using the same cash on the next house you will recover that “lost” cash flow there, plus even more on each subsequent refinancing. All of those houses are using the same cash. In the end, when you refinance the last house, you get your cash back…never spending it…just using/moving it from one house to the next…then out.