Today I will show you how you can a discount in a real estate deal as much as 75%. I am talking about any deal: not the one your cousin is setting up for you, or a good friend is looking to make more lucrative for you.
I can go right now, and assuming I have 25% of the value of any deal (I don’t care if it’s worth a few million or even hundreds of million) I can buy myself that deal. What is the 25% of course? The down payment!
Oh…so Anthony is talking about loans again? Yes!
See, people are afraid of loans: they are scared they won’t be able to pay back and even keep up with the interest, but what they don’t often understand is that you don’t risk much (aside of that 25% down payment.) And in most cases if you are smart in your investing, you can minimize your risk to ensure a successful real estate deal and process. But most people are even scared to walk out their front door, so what I’m saying may sound a bit strange to you all.
But say you are looking at a $5 million dollar deal (say it is multifamily – less risk.) The amount of money that can buy you that deal is $1,250,000. Now of course many of you don’t even have $200,000 to invest in real estate. But you can use that 25% rate to smaller size. The point is that you can pretty much get to any deal, with a down payment that will convince a bank to give you a loan. And guess what: if you don’t have the cash amount for the 25%, you can go and raise it from investors. The thing is you have so many options, and that is what I love about real estate. Many people would love to invest in your venture to get a passive income of 6% on the borrowed amount. And basically everyone makes money.
So what you need to understand, is that you don’t always need cash to get deals going and as I’ve said before, many millionaires and successful real estate tycoons keep on borrowing to this day. Pretty much, anyone who hasn’t retired in that business borrows. That is why of course when there is a market meltdown, people lose their shirts. I am not saying it’s an easy industry for anyone. But you won’t get anywhere with cash. No matter how wealthy you are, there are always better deals you can approach and pretty much buy at 25% of the value. In many cases you don’t need collateral as the property itself often works. So you really don’t have anything (other than the down payment) to lose. You just move forward and make sure you do a good job. It’s really that simple and that hard.
Would I recommend you get into million dollar deals with no prior experience? Hell no! The reason not being the amount, but rather the difficulty of those projects. The more expensive the project, the more difficult it is to structure it, and the more people interfere in between. So you need to be aware with everyone’s role and so that you don’t get cheated. But the only way to get there, is to start somewhere. Also, if you are looking to go into the multifamily business, I would not recommend you go into fewer than 16 units. I don’t care how much those 16 units cost, you can’t do anything less because you need to remember the 3 t’s: tenants, toilets and termites. You can’t manage all these on your own and most likely you will need a management company to take care of these. So that means, that in order to be able to afford them, you need to get more cash flow going. Understand, that no matter the # of units, you will still spend approximately the same for the management company. No great differences in expenses: so it makes sense to go into something that will produce more money for you.
But that doesn’t mean going into multi million dollar deals either. Depending on where you are located in the US (because US is the only place worth investing at, today) you can get 16 unit deals for less than $1 million. Go for those ones just to get your feet wet.