Yet another newbie seeking guidance!

[phlemboy]

Hi everyone. I'm a newbie to REI and this site. I gotta say. There sure is a lot to digest here. Any tips/feedback will be appreciated. I've decided to enter into REI to accomplish two things ( for now).
                    1) To earn $2500/mo. or more of passive income within 2 yrs.
                    2) To have $2M in equity within 15-20 yrs. to pay for early retirement &
                         2 college tuitions.

I want to start by acqiring 10 to 15, 2-4 unit multifamilies and pay them off in 15 - 20 yrs.
My FICO IS 687 - 700. I have about $3,000. I make about 50k - 60k /yr. I own a home. I live in a small town in Mass. I realize that I may have to try flipping to generate down payment money. I'm hoping there is financing out there that can help me avoid that if possible. I want to consevatively leverage my propertie to acquire future properties. Does this sound like a logical plan? I could use some experienced feedback. Thanx.

                                                Mike

[propertymanager]

Hi Mike,

Yes, it seems like a reasonable plan.  However, you need to refine your plan to determine exactly what you will need.  For example, 10 to 15, 2-4 unit buildings is anywhere from 20 units to 60 units.  Is it 20 or 60?  How much cash flow will you get from each unit?  Will you do the management and maintenance yourself?  You need to learn the basics and learn YOUR market so that you can answer these issues.  Keep studying and join your local REIA.

Good Luck,

Mike

[jbaldwin]

Very doable plan.  Here's what you're going to run into.  After 2-3 years and you have met your goal you're not going to want to stop, and I don't see why you would want to.  I have found with myself that I am becoming a bit of a deal junky.  Even when things are stabalized and doing what I expect them to do I seem to always be chasing the next deal.  And I think you'll realize this with yourself, maybe not, but I just want to make you aware. 

Let me add this to help you refine your initial goal though.  You want to try and net between $50-$100 per unit on your rentals.  Using those numbers you will need to own 25-50 units, backing up what propertymanager said earlier. 

Assuming you have been studying RE and talking to others that are involved in it, it looks to me like you should be on your way.  In case you need some specifics about how to evaluate your properties, create cash flow analysis, etc. there are some heavily discussed forums on here that address that or you can create one and rest assured people like myself and propertymanager will introduce different ideas with respects to that topic.

My first piece of advice to you-------->>>>>Don't be scared to make low offers.  I recently sat in my commercial bankers office showing him a block of properties listed at $580,000.  I told him I wanted to get them for $505,000, he then stated so wisely, "You'll never get them for less than $530,000."  I offered $495,000, he countered $509,000, we settled at $504,000!  Now that's 86% of the list price and you're going to want to do better than that, but these properties are side by side which help with mgmt. efficiency therefore saving money and they are also part of a bigger plan of mine for the area, but it reinforces the fact that you have to make good deals to be where you want to be in 2-3 years. 

I'm closing on a triplex on Wed. morning that was listed for $163,000, I offered $113,000, they countered with $117,000, I accepted.  That's 71% of the list price and when I made that offer I had to convince the Realtor to make that offer (even though it's their duty) because he was SO convinced that I would offend the sellers.  Good luck!!!

[tgauchsin]

My first piece of advice to you-------->>>>>Don't be scared to make low offers. 

How low should you go.  I haven't made any offers yet, but when I do I was planning on offering between 45% - 55% in order to make the properties cash flow.  Who knows maybe they'll bite.

Tg

[tatertot]

There's nothing wrong with your plan except your unrealistic expectation that you are going to get passive income.

Real estate is not a passive business. You have to be actively involved and it is work. Some of it is hard physical work, and all of it involves keeping on top of things.

You will have to deal with a lot of difficult people and there is a lot of maintenance involved.

Real estate is a good business, but if you want passive income, I suggest money market funds.

[Dave T]

"Passive" income is an IRS term applied to the income derived from a rental property activity.  If you want your income from money market funds, then that is portfolio income.

Let's not use an IRS term for the source of income to connote the level of active participation needed to generate that income.

[Hugh0997]

Hey Phlem!  I am new to this site as well and am basically in the same position you are.  What part of MA are you from??  I have been looking for a REI group but havent found one close yet.  I think that makes a great start, maybe find someone to work under to see how its really done.

[phlemboy]

Thanx for the info everyone. I've been reading a lot of books on REI. A great one is "The Millionare Real Estate Investor" by Gary Keller. It covers a lot and explains it well. It really pened my eyes. Along with the Kyosaki books. I know I'm just scratching the surface. This site is AWESOME! There are a lot of smart people who are willing to help you. I hope to focus on mainly 4 unit multifam. and trade up to aprtment buildings. Thanx again everyone.

                                  Mike

[jbaldwin]

Keep in mind that 4 units and above is considered commercial and you cut yourself off from residential lending and the wonderful 30 yr note.

Also, I dont pin myself to always offering x% of the asking price.  Obviously if you came across a terrific deal you want to make an offer that gets it under contract.  But I have found that generally my offers are about 70% of sticker price.

[thinkfirst]

jbalwin.

Your remark about Realtors duty to make the offer no matter what. Why is it I can not find a Realtor to do this practice. I have filled out what I considered to be real earnest offers on paper, only to have the Realtor reply verbally that the offer was too low with no counter offer. One offer was only five weeks ago in Houston on property listed at 206K I went in with an offer of 185K. Another one was in Hawaii (months ago) list was 525K offered 495K and again the only reply was a phone message stating that the bid was too low...no counter??
I have yet to find a Realtor that I have confidence in. They seem to know a game that I am not aware of. I can't wait to find an honest agent out there that I can work with.

dm.

[propertymanager]

How low should you go.  I haven't made any offers yet, but when I do I was planning on offering between 45% - 55% in order to make the properties cash flow.

Tg,

I don't think you'll have much luck offering 45% to 55% of the asking price on properties.  Even if you were, the asking price is totally irrrelevant.  If you need to find properties at 45% to 55% of the market value for your area, then you need to find DESPERATE sellers who are already asking a price MUCH LOWER than market value.

Good Luck,

Mike

[aak5454]

sounds like you are dealing with sellers who are clueless as to the market condition since both of those are pretty reasonable offers in this market.

its a little unclear from your post, but it sounds like your referring to the response from the listing agent.  In that case, they are just communicating what the seller has said. 

Are you susbmitting your offers thru an agent???

I would not be too concerned about rejected offers.  You need to determine what YOU will pay for the property regardless of what it is listed at (usually some fanasty number anyways) and if the Seller does not want to come to the bargining table, then move on...

jbalwin.

Your remark about Realtors duty to make the offer no matter what. Why is it I can not find a Realtor to do this practice. I have filled out what I considered to be real earnest offers on paper, only to have the Realtor reply verbally that the offer was too low with no counter offer. One offer was only five weeks ago in Houston on property listed at 206K I went in with an offer of 185K. Another one was in Hawaii (months ago) list was 525K offered 495K and again the only reply was a phone message stating that the bid was too low...no counter??
I have yet to find a Realtor that I have confidence in. They seem to know a game that I am not aware of. I can't wait to find an honest agent out there that I can work with.

dm.

[phlemboy]

Hey! I started this question and now it's all about everone but me!! hee hee hee!! Anyway, even though I'ma newbie, I remember reading  a very good piece of advice. The difference between a good deal and a bad is simple to see. If the ACTUAL numbers produce positive cashflow it's a good deal. If not, it's bad. That being said, sometimes you can negotiate the terms of the sale to make a good deal great or a bad deal good.


                                   Mike

[Bluemoon06]

Mike, I want every deal I make an offer on very very very badly...at the price I want to pay.  I don't want it at all at a penny more than that.  It is like the ugly girl that wants to marry you.  She wants to marry you really bad.  She will put up with a lot of things just to get a date with you, but you won't marry her unless she is a good fit for you.  (where have I heard that before   )

[phlemboy]

Come to think of it. My wife did a LOT of stuff for me when we were dating  . And now we just    .  Oh well, live and learn huh? hee hee