Last reply for today...This is what happens when I don't have any appointments to go on.
"Traditional investing vs. risky leveraged investing"- your subject... how is the way we acquire properties more risky than financing it for 100%, or putting a down payment on a property and personally signing a note for the rest with you? We are buying properties undervalued, with no money down, and we are simply making payments to the seller's finance company, so this loan remains on their credit report, not ours. In fact, I would argue that your way of being personally responsible for each house you acquire, and putting your credit at risk, is much riskier...
The model that we use (and I hope you don't mind I'm speaking for you Dutch, please feel free to correct me if I misspeak your point of view) is to get someone in our properties that provides us at least 3% of the final purchase price up to 10%. In my case that's $7,000 to $20,000. This is money up front that someone has to have to move into one of my properties. They know if they default on their payments, this money is non refundable. Plus, because they do put that money up front, and that money is going towards them owning the house, they take care of it as if it was their own home, not a rental. I have had people improve the property by painting, add an egress window, finish off a basement, all these things add value for them, but if they default I get a house that is better off than before.
Taxes, water, city utilities, anything that unpaid could result on a lien on the property, I pay and bill them. The property taxes, a renter doesn't even pay, but in a land contract, it's es crowed in the monthly payments. A slip and fall, that's entity structure and asset protection. I have an umbrella liability policy, but that's no different than you having a property that you bought and are fixing up and someone falls on the sidewalk.
I have never yet had to go to court and evict someone. Mr landlord, Conti and Finkel, and Bronchick all talk about friendly eviction and it works like a charm.
And regarding your statement about holding notes is such a bad thing why is JD Wentworth buying them on $.50 on the $. If it was such a bad deal, would JD WWentworthbe buying? They know that people want a portion of their money up front, but the true money to be made is holding an asset.
Finally my last point: Almost exclusively the properties we hold, we do not have a mortgage on. We are using the sellers ( the people that we bought the properties from), their financing. And that's what I'm saying is the most powerful aspect of our model. I know we could go out there and finds lots of properties undervalued. But if today every tenant/buyer left, what would we be out, we'd just find another tenant/buyer to give us more up front option money, sell it on the retail market because hopefully we bought with some equity in it, or worst case scenario, give the house back to the original seller. I'm not saying we would do that, but we could. And that wouldn't affect our credit score at all. Plus we're not having to go to a bank, or be dependent on a bank for our investing. We're not paying closing costs on each house we are acquiring, and if the market should take a downturn, we're not left with a house that's worth less that the mortgage on it.
I'm not saying your method is wrong or bad, I just wanted to let people know there are other ways, than the traditional way to invest. Sure it's more complicated, but it works too, and it's less risk, and can have a greater return. Most houses we buy, no money to the seller, we may have to pay them something when we sell the house to our tenant/buyer, but no out of pocket money. We then find a T/B, they give us up front money, make monthly payments, and when they do buy the buy for more than what we are buying it from the seller for. If they leave, they lose their up front money, and we find another T/B, collect more up front money and get them to pay the monthly payments.
Can you see if we are putting no money into the deal, not personally signing for a mortgage, that this way is in fact not risky at all, and your return can be infinite?
So that's just my opinion, I love to have these conversations with people and enjoy reading the posts...
Thanks all...good luck
brent
scarne@yahoo.com
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