Image by Jesse Bridgewater from Pixabay
# 3 Syndications
There are a lot of trainers and ” gurus ” traversing the countryside teaching how to do syndications . The attraction is that you can quit your job and become wealthy . They present testimonials , picture luxury homes , and stand next to exotic automobiles . So , a lot of sincere but inexperienced people sign up . Lately , there is a huge demand for apartments by syndications that might overpay , buy wrong properties , or mismanage the 5710-year project . It ’ s easy to make faulty or fraudulent projections on a 10 year EXCEL spreadsheet .
The other thing is that new syndicators are taught to pay experienced syndicators with good credentials to lend their qualifications to the project for a portion of the ownership . This makes the new syndicator look better . But are they really better or still inexperienced beginners ? Would you bet your money ?
# 4 Turnkey Investing
Distance investing in “ turnkey ” properties can be viable if it is done right . Needed are a rehab with quality materials , all necessary inspections , and all permits signed off . Many turnkey operators skimp on these to increase their profits . A prudent investor would visit the area , inspect the property , review the inspections and permits , and interview the potential property manager . “ Armchair investing ” is not enough because once you buy , it ’ s yours . The others could split , and you ’ re on your own .
I had a client who wasn ’ t given promised repairs . The city inspected and threatened to prosecute him in Cleveland while he lives in Palo Alto , California . He fired the donothing property manager , hired a new one , got the repairs done , and salvaged his situation . It ’ s a quality , brick home in a good area with a quality tenant and good cash flow , but a “ passive investment ” it was not .
# 5 Fix & Flips
Much of the talk on TV , in the media , and online is about “ fix & flips ” of houses , and even larger properties . Every now and then the news reports the average profit is $ 60,000 + per flip . You can do one every six months , parttime ! Really ? Well , the $ 60K “ profit ” is not calculated to include materials , labor , permits , advertising , and holding costs . Big difference ! Perhaps this is why 80 % of “ fix & flip ” entrepreneurs reportedly quit after their first project .
Now , if you want to try it , do it right .
1 ) Estimate the costs accurately . 2 ) Estimate the “ AfterRepaired Value ” ( ARV ) accurately . 3 ) Hire a competent , reliable contractor . 4 ) Select the right type of house . No two bedrooms . Too small . No Victorians .
Antique money pits ! ( Disclosure : I live in one , built in 1898 .) Ideal are 35 bedroom , modernconstruction “ tract ” homes on standard city lots , bought right . Do not compromise and “ reach for a deal ”. Pass , and keep looking . As they say , “ You make your profit when you buy .”
# 6 Lending
Here are four things to know about lending :
A ) On a purchase situation , the appraiser will bring it in at the contract price if they can . ( That ’ s why they ask for the sale price in advance !) They try not to come in below the contract price , but they scrupulously won ’ t go above it .
B ) On a refinance , appraisers tend to come in lower to protect the lender . Don ’ t expect a high appraisal because you ’ ll be disappointed . C ) Do not think “ No Points ” is a bargain . It ’ s a “ comeon ”! Lenders seek a certain yield , so any concession on points they make up with the interest rate . There ’ s no free lunch .
D ) My adult son started a refinance with an online lender . Part way through , he found a better deal , canceled the application , and pulled the loan package . The former loan agent howled . What do you think ? Is loyalty required when you are getting a loan online ?
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