The value of CASH!!!!!

[fdjake]

People always ask me WHY I recommend saving $30K before you start investing in Real Estate.

FIRST.....It teaches you DISCIPLINE...Without that...Your Real Estate investing career will be a SHORT ONE!!!

Second it CREATES opportunity.

Cash equals SPEED....In Real Estate, SPEED equals MONEY!!   Money made, and made SAVED.

Example....

Let's use our newly minted LPN Josh (Hoosier) as an example.

Josh worked his @ss off getting through school and he didn't stop there.
This little SOB has stashed $10,000 in his savings account in RECORD TIME!

So how's he start out when he hits the $30K mark??

First he stays FAR AWAY from any property listed on the MLS.  These properties are "in play" everyone knows they're for sale and "if" they're underpriced two things happen....They get gobbled up or BID UP...Either way Hoosier doesn't want these.  He doesn;t have the knowledge (yet) to act fast enough and he doesn;t want to get into a bidding war for his first property.

What he wants is that property NO ONE KNOWS in for sale.

He works in a hospital....If I were Hoosier I would DISCREETLY hang signs on bulliten boards within eye shot of VISITORS....Keep it short and sweet.

I BUY OLD OUTDATED HOUSES.  No need to clean them out, we do that for FREE!!!  555-555-5555

He needs to do MORE than this but the idea is to get the word out to your potential market and have THEM call YOU!

Once that first deal comes along he has options..

First...He can list the property on the MLS and let the feeding frenzy begin.  This returns his money fastest and builds his bank.

But at some point he's going to want to KEEP one of his deals and turn a LITTLE of JOSH's money into a LOT of some banks money!!

Let's say Josh grabs a 3 bed ranch that needs minor work...He pays $20K for it...Fixes it up a bit (spends $5K) then rents it for $700/month.
Josh's bank account now has $5K left in it...BUT....He has a house worth $75K.  Josh heads to his best LOCAL BANK...No BOA, NO WELLS FARGO, NO CITI.....LOCAL BANK ONLY. 

Josh then hands the banker the DEED to this fully paid off house.  The banker is BLOWN AWAY that this KID just passed him a deed on a house he not only OWNS OUT RIGHT, but even has it RENTED!!  At this point Josh is now referred to as "MR. HOOSIER" at said local bank.
Mr. Banker sends out an appraiser and the bank gives JOSH a HELOC on what ever percentage of appraised value they are comfortable with.  Josh uses this money to buy and SELL more properties.....He only KEEPs the best ones,  the ones he's into for the least, and will appraise for the MOST. 

After just a few years Josh notices that his TENTANT has paid him back every cent that he spent on that first property!!!  JOSH's bank account continues to grow as more properties are bought and sold and more tenants pay him back his original purchase price on his "keeper" properties. 

The bottom line here is this.....If Josh can BUY a property CASH that costs him $25K and can get it rented and get a HELOC for say $50K....He just REPLACED HIS $25K with a BANKS $50K!!!!!!!   And he still OWNS the house!!

It's only as hard as you want to make it folks!!!

[furnishedowner]

fdjake,
Terrific post again.

Put all your advice nuggets in a little book and you have a best seller.  You have a refreshing, to-the-point way of writing that is unique.

Please keep giving advice and tell us what you are currently working on!

And I think hoosier is pretty amazing, too.  How many people do what they say they are going to do?

Furnishedowner

[Hoosier4life2005]

Thanks for the post jake and the encouragement furnished!!!!

Ill tell you one thing though, im really encouraged to get going on this REI more than EVER.  I hate working 9 hours a day, EVERY DAY (nearly), working for somebody else, for just 150 a day. Im not lazy, I just dont like working for somebody else when I could work for myself. I cannot do this the rest of my life.  To me REI is more about the freedom of living your own life, even more so than the money (the money is deff a positive too though   ).

 I will deffinetly keep you guys posted on how much iv'e saved.  I fully expect to have saved 25-30K by.... around like October-Nov of 2011?  By then I should be looking to buy.  Its been alot of work, for nearly a year to save 30K, so as jake has said before, I CANNOT AFFORD TO MESS UP THE 1st ONE.

[NoTiceViCtor]

It has been months since I have lurked around these forums and this site.
First of, Hoosier keep on trucking! You have proven to save that type amount of money in a short period of time, wish you the best. I don't want to mention my shortcomings, but I tried also and I couldn't save a cent. Ofcourse like anything else, there's always another try. If I stop then I know I completly failed. Second, fdjake, it is always a pleasure to read your posts!

[InvstrPaul]

Solid sound advice as usual.  Congrats on the 10k mark.  I'm not that far yet but I'm able to save about 800 every two weeks from my paycheck.  So atm I'm saving about 80% of my pay.  So by tax deadline in April I'll have over 6k saved up and 4 of that will be parked into my self directed Roth IRA.

There are lots of homes available in the Kansas City area so I don't think I'll have a shortage of supply anytime soon.  The one thing I think might be a problem is deciding specifically which areas would be best to invest in.  The county I live in has a bunch of really nice suburbs with tons of homes on the market.  I'd hate to buy a good deal and just have it sit on the market for months on end just because there are so many good deals available to buyers.  Guess I'll just have to look for super ultra low discount deals.

Anyways, keep us posted.

[WTSinvestor]

Great post! 

That plan outlined above is exactly what I outlined for my wife in an email last night (I am deployed)  I was so proud of that email because  I thought i layed everything out clearly and explained all the numbers and calculations and how the cash-out refi would allow us to continue and grow our business and what do I get in repsonse. 

Heck no we are not borrowing money from the bank at 5% forget it.  I dont want debt.

I was blown away but I understand where she is coming from.  She is knee deep in the renovation process now and has not had a chance to read anything REI related.  So I am putting together a word doc with all the golden nuggets from this site aswell as pertinent links for REI.

fdjake your entire post is going in the golden nuggets file. thanks

I hope we get on the same page when I get home.

[pete_houston]

WTS,

Go very slow with the wife.
1.Let her finish the project.
2. Get it renting and cashflowing.
3. Work out any things that pop-up and need to be fixed.
4. Let her start wondering what to do next......
5. Build up big reserves in the bank account.
It sounds like she'd be much more comfortable with a big reserve fund.
6. You'll need a year anyway before you can refi so don't rush it.
7. I think she'll come around on her own given time and just a slight nudge from you when she's ready, Don't harass her before then, she'll just dig in deeper against debt.

I've been working with a partner for years and we got ourselves in trouble in 2004 with a commercial property we had no idea what to do with.
Since then, I've continued RE investing and he stayed out of it because of his own apprehensions and those of his wife due to our earlier mistakes.

Just recently, they both started inquiring as to how things are working out for me and they are getting ready to have another go at it. They have paid off their principle residence and built a bank account full of cash. It had to be at their own pace, not one I was setting.

pete

[javipa]

Saving money is for losers.  Sorry, it's tad bit harsh, and maybe insulting, but I know better ...from experience trying to depend on that strategy.  This isn't the economy of 1920, or 1950.  Money is a different animal now that we're off the Gold standard. 

Depending on, and using one's own cash to get started, might produce an education on how to start by using one's own money, but this approach will only take one so far, because eventually one runs out of his own money, and to make matters worse runs out of borrowing power.   What then?

It's much, much faster and safer to put other people's money at risk than one's own.  When we use our own cash, we are often tempted to shoe-horn bad deals into our psyche and call them good. 

When we're attempting to attract money for deals potential partners/lenders are not timid about asking good and important questions that reveal just how mediocre the deals we're offering actually are. 

Meantime, the best way to start is to start, and the best way to continue is to use money from other people, who aren't willing to look at a given deal through rose-colored glasses.  They will soberly analyze what you've got to offer, and if they feel they can make a decent return they'll do what's necessary to fund, or partner with, your deal.  If you do this well, QUICKLY people will bang on your door, and call you at midnight begging you to take their money and put it to work.

Meantime, waiting to scratch money together on your own, is a slow, amateurish way to do things and will ensure that your progress comes to a complete halt, when no bank will loan a dime more to you, and you've run out of personal reserves.  Then you'll be caught flat-footed, and ill-prepared to make it to the big leagues.

If you want to progress past the point of a mom and pop operation and build a real investment business, it's gonna take a different model and psychology than "working hard and saving." 

Donald Trump did not save pennies up to do his first deals, or his last deal.  He used other people's money at the get-go (and so did his dad, whom he learned from), and let them take the risks.  And boy, have some of them taken a hit (apart from asking important questions).  Even Trump took a hit in the early 1980's before he started really leveraging his talents and time using other people's money.  However, he avoided complete financial collapse, BECAUSE those he borrowed from had a stake in his success.  "There's an article about it called, "The Art of the Cram Down" that is very interesting, about how banks treat those who owe them LOTS of money.  They get treated quite generously.

So, when someone tells to save money for investments, know that he does not understand how money works in this economy.  Money is a commodity, not a currency.  It's a FIAT representation of cash that is constantly degrading in value.  Unless you've got an advantage in accumulating FIAT cash by trading your labor by a huge margin, the average person will lose $10k to save $30k, and then finally need something like $40k when all is said and done, to do the same thing that $30k represented at the get-go.

BORROW THE MONEY and get started.  NOBODY WILL LEND IT TO YOU UNLESS YOU CAN PROVE TO THEM (AND YOURSELF) THE DEAL IS WORTH A CRAP IN THE FIRST PLACE.  No need to shout, I guess, but in the meantime, go find the deal, and all the money you could possibly need will show up.

That's happened to me every time I've tried it.  I'm 52 right now, and have been at this for a couple of decades. 

I've lost count of the small operators that either crashed and burned, or stalled, because they failed to understand leverage and the use of other people's money. 

There's no time to waste.

[WTSinvestor]

javipa, I am in complete agreement.  Now have to win the other half over to this side 

pete_houston : thanks for the advice, I will have to try it but its frustrating that I have to wait for things to bubble up and become issues before we can act on it.  She is also constantly over estimating income and underestimating costs.  We are already over her repair "budget" on our investment but thats okay because my budget that I had to keep secret was more than double.  So while she is freaking out that she didnt manage to install 2 new kitchens, 2 new bathrooms, replace eletrical and some other cosmetics for 10K I am calm because I knew it would cost 20Kish anyway and took that into consideration before we purchased.

I think another issue with having your own cash and using it in this business is some people get into the mentality of well  I have the money so I can pay this fee and that fee but if you didnt then you probably would have figured out that you didnt need to pay that fee in the first place.  Just from my limited experience.  I am learning the hard way but I am reading like crazy to avoid making the more costlier mistakes.

thanks to the great posters here 

[fdjake]

"Saving money is for LOSERS"

That my be the single most ridiculus statement I have ever read on this site.

The best part of that post is it was a response to a CONCERN from another poster about his wife's worry over debt.

YEA.....Just tell her she's a LOSER!!!   That'll fix it!!

As far as KNOWING how MONEY WORKS in this economy......I'll let the 7 FIGURES I've added to my NET WORTH (IN CASH, not mortgaged property) over the last 2 YEARS do my talking for me.

One last piece of advice for Javipa.....

I've seen your business model BANKRUPT more people than I can count.  They ALL talked just like YOU.....

"SAVING MONEY IS FOR LOSERS."

It's always the same story.....

The guy driving the 15 year old Ford pickup has enough CASH to buy and sell the "SAVING IS FOR LOSERS" guy driving the Ferrari every time.

One last point....

When "The DONALD" lost his @SS during the 1990's real estate crash WHO did he have to turn to to bail him out????

His BROTHERS and SISTER...... who SAVED THEIR MONEY and came to DONALD'S rescue with.....

C A S H!!!!!!!  The CASH came from a TRUST their LOSER FATHER Fred established for them.

THAT LOSERS CASH.....kept Donald from getting wiped out while he scrambled to restructure his debt.   I wonder WHERE all that "other people's money" was then???

Yea....Saving money is for......L O S E R S.

[REIER]

Saving money is for losers.  Sorry, it's tad bit harsh, and maybe insulting, but I know better ...from experience trying to depend on that strategy.

Oh yeah and the "winners" who don't have a penny in their name have to depend on "payday." As soon as those paydays are late or skip a beat, those "winners" (I keep cracking up every time I type that term in reference) come knocking on the "losers" who saved their money. Or how about those "winners" who need to be abused at their jobs and could never walk out because they have no cash reserves and would end up on the streets the minute that pay check stops coming in and think saving money is for "losers." And their boss (who has money) loves having that little tied down slave producing and making HIM money every day. He laughs all the way to the bank.

And where do I find these people who will just let me blow their money on poorly thought out business plans and just walk away shrugging my shoulder saying "oops my bad" without any consequences? I sure as hell would never allow anyone like that borrow my "loser-outdated-times-mindset-cash" 

You are right about one thing, though, times HAVE changed!! You need cash to do business and create business systems to PRODUCE MORE CASH and to keep a roof over your head these days more than ever. Gone are the times when money and easy credit was flowing down the river and for all the "smart winners" to take. The winners are the ones who are bankrupt, in foreclosure and have lost most, if not all, they have. Those are the guys drinking them selves to sleep every night trying to heel the pain. Me? I sleep like a baby with my stashed cash. I think I'll go take a nap after writing this 

For anyone reading this looking to live a more fulfilling, less stressful  and successful life, save your cash and invest it. If you want to leverage others cash, do so, but have your own reserves to pay up when you "f#$&up!! Because as soon as you slip, those "losers" who lent you their money are taking you to the cleaners and then some.

Written by a "loser" who laughs all the way to the bank.

[javipa]

I'm suspicious that a couple of you flamers here didn't actually read and understand, much less and absorb my post about "saving?"  

It's not about recklessly putting other's money at risk. 

It's also NOT about NOT saving.  Re-read my post and tell me where I said you could/should just borrow and blow cash? 

The point I tried, evidently unsuccessfully, to make was that waiting around to save money, will slow you down, if not eventually cripple your progress past a certain point.   In my experience, it was faster to partner with someone with the money I needed, than it was to wait and do it all on my own.  It's not rocket science. 

My family was the most conventional when it came to getting started investing in the real estate.  In fact, we pooled our energy with our relatives to save cash for down payments.  One way we raised cash for down payments was buying and selling school buses to churches.  We also sold car accessories and other crap at swap meets and car shows.  You can imagine how slow it was making $15 bucks per sale. 

It was a long slog.  We did this for too long.  However, it didn't matter how much down payment money we had at one point, the bank would not lend us any more money, because our dtir's were not adequate for their taste.  We had too many houses, too many loans, too little income (for them).

I think that was the point at which we had to start thinking creatively on how to buy more property.  If we had understood leverage and partnering better at the beginning, we would never have hit the wall we did.  We wouldn't have had to stand in the rain hoping to sell car accessories, driving buses from Utah to California through snow, and spending all sorts of time and energy on low-return endeavors,  ...if we had known better.

Meantime, after learning how not to do things, I bought my first apartment building using 100% other people's money.  I split $400k in profits in less than 36 months, which would have taken me about 10 years, based on my previous track record, to accomplish. Much less, if I had waited to "earn and save" the money required for that deal, I would have first had to pass up on the deal...  No thanks. 

Of course, after I paid my taxes, I took home $150k and really started making things happen for myself.  Just to recap; zero money invested of my own; pocketing, after taxes $150,000; in less than 3 years. 

Again, there are those people who make a huge sacrifices, like we did, and saved enough to keep in the game.  Unlike you flamers here, we didn't have a lot of extra ability to save, or have a leg up on the fat, hairy deals that that you evidently seemed to have found and taken advantage of.

No, we did the saving thing, and then learned better about partnering with those with the bucks, and moving much higher and faster than what we could have possibly accomplished on our own.

Meanwhile, I have no intention of defending my position here.  I'm not insecure about expressing what has been true for me.  Maybe I'm just the luckiest OPM abuser on the planet.  Maybe.  However, I'm sticking with this terrible plan until I've made all the money I want.  Then I'll go blow money on toys.

Very interesting reactions. 

 





 

 

[fdjake]

The "FLAMERS HERE" as you call us have a problem when someone says.....

"SAVING MONEY IS FOR LOSERS."

I didn't write that......YOU DID!!   and it wasn't MISUNDERSTOOD.....It was stupid...PERIOD.

I also see in another post you have here that you "can't handle all the NEWBIES that are calling you for your program. But you don't have time for them and your PAYING STUDENTS!!!"

So.........."Saving money is for losers" is that......

The GOLDEN CIRCLE level coarse, or do you get that at the ONE on ONE Boot Camp???

Sell it somewhere else man.....We've seen it here before and it's O L D.

You'll learn that around this site....The folks that carry the most water, don't CHARGE PEOPLE for HELP!!

[Mdhaas]

Ouch!

[javipa]

fdjake,

Wow.  Fairly aggressive post even for an anonymous poster.

Calling "savers" "losers" was a ham handed statement, I'll admit.  However, I find that people will listen more closely sometimes when they have a reason to listen.  Thus that statement.

However, what I didn't keep in mind here was that what I stated came across as a direct attack on you (evidently), which isn't my intention whatsoever. 

Meantime, perhaps a more accurate statement would have been to say "saving will cost you profit, momentum and time (thus losing money and time)," but somehow that doesn't have the same ring to it ...apart from not saying what I wanted to.

I'll give on the issue, only because I have appreciated your previous posts and found them thoughtful and certainly helpful.

Anyway, I still recommend not waiting around until we can do deals on our own, but rather, partner with those who have the assets (money, time, or talent) that we don't have enough of, in order to take advantage of today's opportunities.

That's it for me!

 

P.S.  I'm not sure what you're talking about regarding not helping those who've purchased my investing course.  My contact information is available on this forum...and practically all over the internet.  I love helping my students.  I am helping one of them buy some apartments sub2 as we speak.  That's not really a course I teach, but he's migrating from houses to multifamily using the same approach he learned from me on single family houses.  Meanwhile, if you have a name of an individual that I'm not helping, that paid for my help, I'm anxious to find out, because that would be a breach of my agreement. 

As far as "not" giving free advice... Are you complaining? 

You don't like, respect, or trust what I post here in the first place, so why on God's green earth would you ever want advice from me that was free, or otherwise?  I'm confused.

Signed Javipa.  Forum member since 2005.