Start by Building a Runway
Today we continue with the “how to get started” theme. I love helping people get started. Even if it’s forming a plan to build a runway, financially, to make a move in two years from today. It is this action that separates those who will talk about real estate from those who will actually make something happen. In this installment of the blog, I have some new ideas and a little bit about mindset. I hope you enjoy.
Sometimes when I talk to people about real estate they tell me all the reasons this stuff won’t work for them. I try to assuage their fears and help them see a way around the obstacle they are focused on. Some move forward and others find a new obstacle to put in front of themselves. I smile and nod and if they persist with the negativity, I just back away. I am not very sympathetic to those who need to defeat themselves. We have to get our heads right to overcome our fears. The biggest purpose for writing this blog is to show others how to get started and to overcome fears. Fear can be a great motivator as the accomplished real estate investor and all around good guy, Steve Carlson states. So in keeping with the topics of ways to get started, I am going to give some creative options that don’t require bank financing for those who are intimidated by that or who don’t have W2 income to get approved. Not to worry, there are still plenty of ways to play.
Sub-to. Did you know that you can buy a property subject to the existing loan? This could be a great opportunity if you find a seller who has a “don’t wanter” property but that has a good loan in place. Perhaps the house needs some work and the seller can’t sell it for enough for to pay off his loan but you come along and offer to take over the loan. You may be able to solve his problem by paying more. How can this deal make sense? Let’s say the loan is seven years old and was bought when rates were very low. Maybe you can fund the repairs from other funds you have access to and now you have a loan that is starting to pay down principal more and more each payment. In essence, you are buying the house and the loan. The same loan that is one year old isn’t as valuable but the older the loan; the more goes to principal. This means that if this house could be even a mediocre rental, it might make sense as your pay-down would be accelerated. And you don’t have to qualify with the lender!
This technique is not without risks however. There is a clause called the “due on sale” clause in almost all modern mortgages that says the bank has the right to call the note due if the deed is transferred. While this rarely happens, it does occur from time to time. Most banks are happy as long as the loan is performing and they are receiving their payments. There are even remedies to this if you find yourself in this position. It is definitely a technique worth exploring more. It is not illegal to do this; just a breach of the clause. I haven’t personally used this technique but I know the basic premise if I come across a deal that I could use this strategy on. Even more importantly, I have met people who do know the ins and outs of this technique who will help me. This is one of the many reasons I preach the value of networking. The best part is getting an older loan and not having to do all the normal paperwork associated with a purchase. I would advise using a lawyer to help with the documents that are required for this type of transaction.
Here is another option for those that don’t fit into the box conventional lenders need you to fit into. With all of the talk about short term rentals, I am often tempted to turn a property into one. We haven’t yet but it’s a possible exit strategy if we ever need to utilize it. Just one more tool in the box. Consider this, if you have no credit, you could possibly rent a place in a trendy area and, with permission from the landlord, sub-lease it as a STR (short term rental). You would furnish it and make it look cool and help provide a unique experience and you could earn some side cash to use in investing while still being in the real estate world and learning. This niche requires its’ own skill set but can be very lucrative for those willing to master it.
How about partnering? My partner is my wife and we bring different strengths to the business. You may need or want to partner with someone who has the skills or assets that you don’t. You could bring the hustle and they could bring the credit and/or cash. Think about what you have to offer. Think about what someone else needs. We partner with private lenders who have other careers and want to put their money to work. So we bring the expertise in real estate and the desire to do deals, and they bring money. We both benefit. You could also split a deal with someone who could get bank financing if you bring the awesome lead with enough meat on the bone to split. You could partner for a long-term business or just for one deal. You could have multiple partners. The legal agreements should be well-documented for unforeseen challenges that may arise. If you don’t have any money, start figuring out what you do have to offer. It may be knowledge. And that can be obtained for zero dollars these days. Become an expert and find deals and the money will be there. If you think you don’t have time, make it. Read Miracle Mornings by Hal Elrod if you want to learn how to make more time.
It is often said that you need time, talent, or knowledge to succeed in this business. I would add “drive” to this list. While you could just have cash and deals may find you while you lie around; most of us with knowledge or time as our primary asset need to also have drive. I know a lot of would-be investors who have one, or all, of these three things but without drive, it is useless. It is like a perfectly built fire with paper and kindling and sticks and logs but no spark to get it going. In fire science they used to talk about the fire triangle as being fuel, heat, and oxygen. When these things come together in the right proportions, they would create fire. I would say that investing is like that. You need all of the parts and then the initiation energy like a match to set it into motion. Without the match and someone to strike it, all of that wood will just sit there forever. Also, like fire, investing in real estate tends to grow exponentially. A fire doesn’t grow in a linear way in which every minute an equal amount of fuel is consumed. It grows exponentially where more and more fire grows each minute as long as there are the needed components. Real estate investing has been like this for us. We feed the “fire” by reading blogs and going to networking events to learn more. These things also help keep the drive alive by keeping us excited about it. It’s a little like bringing your cooling fire near a gust of wind and watching it flare up again. You also meet people who have more of the components you need and find people to share what you have to offer. Now everyone’s fire grows stronger. This may seem silly but this image works for me; a firefighter and lover of campfires.
If you’ve been a reader of this blog for long, you know how this will end. This ending is because I had someone light this fire in me. He was a child of the great depression and had plenty of reasons to be fearful of financial hardship. He was my Grandaddy. I believe his fear of not being able to provide a better life for his family than the life he had lived as a child was what fueled him to succeed. He created a real estate portfolio that wasn’t used to fund luxury items but did buy security for his family. My Grandaddy’s fear bought his only daughter a safe home to live in during a tough time in her life. [Read the post here. ] So use your fears for fuel and as he would say, “Keep the main thing the main thing”.