Real Estate Investing

Discussion in 'Economics' started by Brandonf, Aug 15, 2009.

  1. Brandonf

    Brandonf ET Sponsor

    I just had a guy come to me, and he is a pretty big name in the real estate investing industry. He's got a business that makes about $2million per year online teaching people how to short sale houses. It's an amazing offer he gave me, but I turned it down because I don't think that real estate is the place people should be right now. I particularly think that short sales is not all it's cracked up to be. Yes, some people are making amazing money at it, but you've got to have great contacts with brokers to get started - and I also see it as a little bit like DayTrading in late 1999 -primed for a fall.

    Anyway - I'm just wanting to have some feedback from you guys -ie did I do the right thing. I know that some of you think I'm just a whore who will sell anything, and I guess that's fine...not much I can do about it, but the fact is that I won't get behind any product unless I'm 150% sure the person behind it has integrity and the product will do exactly what is promised if the buyers follow the system.

    In any event: When you guys are thinking about investing in real estate: What are the top reasons that you don't do it? Or better yet, if your brother/sister, son or daughter came to you and said they want to start investing in real estate, how would you try to talk them out of it?

    I think that the market has a few years to go before a bottom is in, and prices are still very high in most markets, so that makes renting not a very viable option. Anything else you guys can give me would be great....because I don't want to regret this: I left about $200,000 or so on the table.

  2. Brandon, 200K on the table isn't 200K in the pocket.

    Now, are we talking about Marketing his stuff, or actually doing deals?!?!
    As you know, if there's any question in your mind about his stuff being legal/moral, then you know what to do.

    I don't know any of the details of the deal, but if it's a small multi-unit apt. bldg, and you KNOW you can get cash flow, then I'd be tempted to do the deal.
    If it's just 1 house, no way, unless I was gonna live in it and could get it for at least a 75% discount.
    In this mkt, if you can get a 75% discount on a handful of sfh's, again, I'd be tempted to do the deal.

    Much to be considered in any RE deal, but first and foremost is the bank's big, huge "YES" on any shortsale.
    Due diligence, and location, location, location. Trite, but true.
    All the above could be wrong.

    There's many a slip twixt cup and lip.
  3. I'm very familiar with real estate investments. To me, at least based on what you wrote, it sounds as if you don't know much about real estate investments in general, or short sales in particular. Just calling the way I see it.

    Briefly, a short sale in real estate is just a technique you use when the property is worth less than the loan balance. So when you make statements like "like daytrading", or "primed for a fall", what I begin to think is you really don't have a clue. All that could happen to short sales would be that there were few, or no, property worth less than their loan balance. Then of course it would not be an applicable technique. Are you expecting that? According to what I see and hear, we have more properties in that condition, not fewer, and certainly we are no where near none.

    "Daytrading" makes it sound like there is a risk. Huh? What risk? If the property is worth less than the loan balance, you are simply seeking lender approval to sell the property at the reduced value. Where's the risk?

    You think you need "great contacts with brokers to get started"? Well, I don't know what this guy is teaching, but it isn't difficult to find brokers, you don't need them to get started, you can do short sales without brokers. So I don't have a clue what you're talking about.

    Most people don't understand real estate investment. Especially stock market guys. In real estate the idea is to buy well under the market. To do this you need a motivated seller. Do you think there are any motivated sellers around these days? If the property is worth $200K, and you buy it for let's say $140K, do you think you could resell the property for a profit? Do you think that a bank would agree to their loan customer selling you a property for $140K, if the loan balance was $170K?

    Did I say anything about the real estate market going up? Did I say anything about renting a property? But are you aware than in many areas these days the rents are considerably higher than the equivalent mortgage payment?

    You evidently are asking about whether you should promote someone. I wouldn't know since I don't know the details. But I can tell you that real estate investment is a viable method of investment if you know what you're doing. Short sales are one technique that works when you have properties worth less than the loan balance. It's no more complicated than knowing that banks will take a loss on their loan if they believe that it is prudent for them to do so.

  4. rwk


    "Short sale" is a misnomer as applied to real estate. It's called that because the lender accepts an amount short of what they are owed. I cringe every time I hear that term used.

    I have done a bit of real estate investing and made money at it, but it doesn't suit my personality and temperament. Being good at it requires exceptional "people" skills and a healthy dose of psychology. Psychology is useful in trading, but you can also do trading with no people skills at all.

    I looked into doing RE short sales, and I don't see how it works. There is nothing in it for the homeowner, because he takes the same hit to his credit as a foreclosure or deed in lieu. Lenders don't like short sales because they are required to take a loss.

    I have also looked into buying REOs, and it doesn't look like there is a lot of opportunity there either. SFRs are pretty easy to liquidate, even in this market. You just have to price them right. The real REO problems are in distressed properties and commercial real estate, and that's a much harder market to break into.
  5. aegis


    I prefer REI over trading. Even these days.

    While I would agree that we're nowhere near the bottom, plus I don't like short sales, there's still plenty of money to be made. If someone is not finding deals, I'm assuming that he/she is searching through MLS to find properties. Desperate sellers are not going to be found on MLS.

    The guy who lives next door to me makes a living out of finding abandoned homes and hunting down the owners. He uses skip tracers to find the owners and then makes them a cash offer well below wholesale. Sometimes they jump at the offer and sometimes they don't.

    You need to get creative and find a niche. I believe there will be a ton of money to be in made in providing low income housing within the next decade. I'd be buying trailer parks and section 8's if I had the cash. Affordable housing communities for seniors will be in extremely high demand.
  6. Old Trader, are you referring to California or other states? The only stuff I see fitting that category is run-down property that needs some 'fixing'. Usually in poor neighborhoods.

    'Seems like there's still too many bottom fishers. Market won't bottom 'til they too give up & go away.

  7. I can tell you that most of the midwestern states fall into the category. My guess is that Texas is there. California? Probably not in the major metro areas, although that may well depend on the specific area. I have a friend who lives in the Upland/Rancho Cucamonga area east of LA, who tells me he can buy at auction and rent for a positive cashflow. Kinda depends of the deal you get.

    I gotta believe that some of the southern states this would be true too.

    Keep in mind that it depends on the deal, and depends on your financing. And for what it's worth, I like to buy "run-down property" in general. Then fix up. That's kinda a time-honored way to make money in RE.

  8. In the old days, a common game was to take over the loan with nothing down. Worked particularly well with town houses which were then rented out. Don't recall hearing about this type of negotiation now days.

    One day a friend of mine sold the ones that he had accumulated and built a golf course.
  9. My experience in the last 2-3 recessions is there was a 6 mo.-1 year window at the very bottom, where such good deals could be had just prior to market taking off.

    I believe those 'good deals' in other states right now, while good in terms of price, will find the rental market tough if bought with that intention. High unemployment & high vacancies in many areas are not conducive for buying & renting *yet*. My .02.

  10. The majority of fixed-rate loans nowadays have a non-assumable clause, otherwise, if assumable, rates are adjusted. Banks don't let you play that game anymore. Not on their dime.

    #10     Aug 15, 2009