The 800 pound Gorilla in this case is the Georgia Real Estate Investors Association. This was undoubtedly at one time the largest REIA in the United States. They started as a non-profit organization and gravitated toward getting more and more of their revenue from national gurus selling books and tapes. Eventually, this slowed but their slowly declining membership base and many gurus not delivering what they had promised, led to their near total demise.
I was invited to join a sub-group's meeting in Gwinnett County where one of my daughters lives. There were about 20 investors present and that resulted in a lively exchange of ideas and valuable information. They have not seen the decline in prices we have, but are just now beginning to feel the impact of our staggering economy.
Most of the investors at the meeting were landlords, some not by choice, because of over-paying for properties or the lack of buyers to take them out of their properties. They had very interesting experiences but generally would not be landlords if given the choice - knowing what they know now. One investor says he never collects a deposit - just the first month's rent- no one else at the meeting did this and there was a lengthy discussion about the issue of escrowing deposits and the problems if it is not done properly.
I discussed the issue I had with properties cash flowing only a few hundred dollars a month and many of the investors said they didn't make even $200/month net after costs. Again, they followed the teaching of the REIA that stressed buying a property with equity and renting it until it came time to cash out. But the equity disappeared over the years and the minimal cash flows often didn't cover repairs.
I asked why they weren't wholesaling and most just said "no one seems to be doing it". Since the Georgia REIA declined in attendance, there were fewer people looking for wholesale deals. I discussed what we teach our mentoring students to do and their successes and failures. Yes, we have a few students that haven't done a property after months in the program, while others have done four or more in the same time period. If you ask "why", I can only say because those few students aren't using us to their best advantage and they are not consistent in doing the basics of finding deals - because we do all the rest of the investment cycle for them (qualifying, presentation, contracting, and selling their deals). I recently told one of these students that 35% of our deals were coming from one source that she could use herself. For the next ten minutes I got an ear full of why this method of getting deals doesn't work. Remember, I just told her that we were closing on deals every other week from this f.ree source of leads. She even told me she paid $2,500 for a course on just this source of leads and that's why she knew it wouldn't work - because she tried it for a week and nothing happened. Shakespeare probably said something like "a week, a week, oh what a difference a week makes!" What if she had gone on for a month or a year, what would the results have been? I can't say but I know this lead source works for us.
When people are looking to come into the mentoring program they often ask for the success rate. This is a very misleading question because the only success rate that counts is what you do with your personal business. If a student has over 100 years of experience at his beck and call and all the tools to do the job - "why isn't he/she finding properties?" The solution is that while investing is simple, especially when you have us looking over your shoulder ever minute so you have support and guidance, the reality is that the business is "hard" in the sense that you must work to get to your ultimate goal of financial independence. When you find a source of money that requires no work on your part, gives you a fortune in return for a few minutes of your time, you have won the lottery. The true nature of successful real estate investing is persistent prospecting for sellers and buyers and learning how to put them together legally to maximize your profit with no monetary risk.
Here are some HUGE tips that might help you with your investing that I discussed at this meeting. Replacement cost to build new properties is about $125+/- per sq. ft. So the cost to build a new home would be about $125 x 2,000 sq. ft. = $250,000. However, we are making our offers to homeowners in South Florida at prices ranging from $50 to $85 a sq. ft. or well below replacement cost in our area. Remember these same properties were selling for $200 - $350/sq. ft. - less than two years ago!
On the rental front, the historic rental "rule-of-thumb" was that it was a deal if you could get 1% per month of the purchase price as gross income monthly. This formula doesn't work in South Florida to leave the landlord with enough net profit to make the property salable in the future. I expect to hear it again from a few readers - "What if I raise the rents, then it will work - Ha!" No question, that's true, but what if you can't and what if your tenants don't pay timely or at all? Remember the next buyer is probably not looking for a tax loss and he will look only at net income on his investment.
We are now only buying rental properties at a cost basis where they yield one and a half to two percent of the purchase price (1.5% to 2%). For example, if you are going to pay $100,000 for a property, it should have a gross rent (all units combined) of at least $1,500 to $2,000 per month. Actually, these yields are very easy to get in very distressed areas including Riviera Beach, Pahokee, Belle Glade, etc.
In my humble opinion, these are not the areas that are worth investing in because of the danger of collecting rents, tenant issues because of the neighborhoods, and the resale value will always be below other "safer" areas. You are welcome to be a pioneer and look to reap the giant rewards of these areas some day changing to be normal neighborhoods - just remember that pioneers are the ones who get shot with arrows from the local natives.
Most importantly, find out what actual rental rates are in an area either online or at www.XimaUSA.com instead of using HUD Section 8 rentals as a guideline - you may get an unwelcome surprise if you don't check! Section 8 rental rates can and will be lowered in the future as they have been in the past as housing values drop and more rentals become available.
On a very personal note - for some unknown reason, I have recently been almost obsessed about writing about the topic of "Dream Killers". Ironically, this comes at the most successful time for me personally in the last few years. I almost made this entire Wednesday Minute about this exact topic. You see, I have been in places where I blamed my "stuff" on other people or things that happened to me.
On one occasion I got so angry, I actually called someone a Dream Killer to their face. I guess the biggest regret I have about that is the fact I never said I was sorry because they didn't seem phased by it - but I knew in my heart they were hurt. As I gained more insight about myself, I guess the reality was that my only Dream Killers were ones I made up instead of accepting the blame for my shortcomings.
For some of you, the Dream Killers might be fear, procrastination, uncertainty, over-analyzing, over-commitment, well-meaning friends and family members, spouses included, or ............ whatever.
In the final analysis, I have been truly blessed and fulfilled my dreams by a dogged persistence and belief that "I can do it!" and by breaking down the problems/goals/dreams into the smallest of segments so the issues are easier to handle.. You see life is full of issues/problems and the more successful you become, the more you must learn to cope and solve these problems. This is the cycle of life and it won't change, because only you can change.
Next time someone or some idea steals a dream of yours, take a look at what you are willing to trade for your success and the fulfillment of your dreams - and make a decision to live in obscurity, possibly with constant regret, being resentful of life or people, or make the decision to "Go for it!" Remember, if it isn't fatal, you will be stronger for it!
I have had to ask some people "What's the worst that can happen?" because 99% of the time it doesn't happen and the 1% that it does happen, it is no where near the severity they thought it would be!
"Now go do it" and live your life to fulfill your dreams, one step at a time.
To your limitless success,
Dave Dinkel
Exec. VP BREIA Partner
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