Last week was my monthly dinner with Damon, where we discussed real estate topics and whether we learned anything from this month’s IC (Investor’s Club) meeting. We went to the Chinese buffet, and I think we’ll be going there from now on. It’s one price and I can eat whatever I’m in the mood for. I tried to eat healthy, but those chicken wings were calling me.
We got to the subject of the IC meeting that discussed foreclosures, and Damon said that he’s definitely interested in buying foreclosed properties. I voiced my objection:
Me: I don’t know. I like the prices of foreclosures, but they’re always in the kind of neighborhoods I’m trying to get away from.
Damon: I think you’re missing the bigger picture here. Those neighborhoods are how so many investors start off. Didn’t you hear what that guy at the meeting said?
Me: I can’t remember.
Damon: He told the story of that lady who buys properties, fixes them up properly, and then rents them out. Each property makes her at least $1000 a month after taxes and she’s in the neighborhood so she’s close to everything.
Me: Hmm. Yeah.
Damon: And you spent all that time with your mom’s property, right?
Me: Yeah.
Damon: Well, I’m sure you’ve learned a thing or two about how to get the best tenants for areas like that. So why not use that and make money instead of saving up for a huge down payment that will make a bank a lot of money?
Me: Yeah I don’t know. I mean, I’ve just about had it with [Property X] and I was really looking forward to having a nice big property in a nice neighborhood to avoid all that stuff.
Damon: I understand. The choice is yours really. But I think we have a great opportunity to buy properties for cheap with cash, and make an instant $12,000 a year increase in income. I mean, what’ the point of all the prestige of a great property in a great neighborhood when you pay higher taxes, higher insurance, and your profit will be about the same or less than if you used that down-payment to buy two cheap properties with a lesser overall amount of units?
I didn’t have an answer for him. It wasn’t a question of whether he was right or wrong. This was simply a different way of thinking, and it was starting to make sense to me. I can buy a cheap 2 unit for $30,000, fix it up with the Pelcom guys, rent it out for $650 each, and have a clear $1000 per month after taxes and insurance take their cuts… that is, IF I plan to get full coverage insurance. Just like with car insurance, I don’t have to choose full coverage for insurance of a property that I own outright (no bank, no mortgage). I can choose the cheapest type of insurance, and then put it under an LLC’s umbrella insurance and I’m all set. Houses for 30K-40K are plentiful in Smalltown and, with the national average of renters to owners getting closer to 70% - 30%, I'll have a greater pool of tenants to select from. And I’ve certainly learned a lot from Anita’s Property X. Why not use that knowledge to make me some real money??
My mind started blossoming with ideas. I mean, I could really do this. With any luck, I can end 2014 with 20K. By the time winter’s over, I’ll be at around 30K and ready to buy. In fact, I can do this at the end of every winter! I’d prefer buying at the end of winter so I won’t have to deal with any snow-related bullshit. And, with every purchase, I’m cutting my dependency on these crappy security jobs by 40%. One property making me $1000 a month is enough to stop working both Tuesdays and Fridays at the shipping depot. Have you any idea, my sweet sweet blog, how much easier my life will be? Never having to see a package handler again? Never having to work with a co-worker again? Having free time to enjoy my finished apartment filled with healthy foods in the refrigerator, Netflix and stocks on my TV, and great sex on my big new bed?! And this can happen by this time next year! That’s HUGE!
I told Damon that it sounds like a great idea, and I may just do it this way. Maybe I can buy a cheap property in cash next year, and then pay off Property 3’s $42,000 balance and put everything into one LLC. That will increase my profits by at least $1500 a month when accounting for the reduced rate of insurance. Or maybe I’ll buy two of these cheap properties and start paying off my mortgaged properties in 2016? I don’t know… I’ll have to work out the details over time. And I have until April of 2015 to decide, so I’ll be careful to chart every detail on this blog to before I’m ready to move forward with the plan. But on the surface, this looks to be a great idea. I wasn't lying when I said I was tired of Property X's neighborhood. And I wasn't lying when I said that I really want my next property to be in a great neighborhood with six units or more that can make me good money. But when I factor in mortgages and interest rate, it just doesn't seem worth it right now. Or maybe it does, I don't know. I'll have to decipher all this new information in later posts to get to my final conclusion.
P.S.: As we left, I came up with an absolutely brilliant idea for a website… one that has never been done before (trust me, I spent two and a half hours checking). I almost blurted it out to Damon but was quick to shut my mouth, lest he pick up on the idea and use it for himself. This website would make me a crazy amount of money if implemented properly, so I can’t really talk about it on this blog. I’ll have to copyright the idea first, and then meet with a web designer or two to discuss how to make it happen. I’ll also have to talk to my lawyer Marvin Wassle to discuss legalities. It was one of those “light bulb” ideas that literally came out of nowhere, and I’m just as excited about it as I am about real estate and stocks. These dinners have really been nothing short of awesome, as Damon is making a fine muse for my genius.
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