155 - How To Bankrupt Yourself Quickly

Cash Flow Guys Podcast

Everyone is in fear of missing out, even though the talk on the street is that a real estate market correction is imminent. By now I would think people have gotten the message and would not keep getting caught up in the same hype. FOMO (Fear Of Missing Out) remains alive and well in the real estate investing space due to tons of careless buyers not doing the math before they buy. They trade basic financial logic for the thrill and excitement of buying an over-valued property.

To some degree, the Brokers and Wholesalers share part of the blame by providing inflated estimates of value and inaccurate income and expense information to potential buyers. If a buyer is naive enough to believe the data presented as accurate without further verification, they must be willing to accept the majority of the blame (if not all) “Off Market” is a LIE, Off-Market often stands for “it costs more” because off-market lacks the checks and balances. Let’s be honest with ourselves, if it’s For Sale, it is On Market. OFF Market is unregulated, unsupervised, the Wild Wild West if you will, this is what I mean by lacking checks and balances. Off market properties generally seek cash buyers thus no appraisal is required. When an appraisal is not part of the equation the market value is determined by what the buyer believes it to be, which is often influenced by the seller or their broker or wholesaler. The good news is, overpaying can be avoided. First, remember to be direct to the seller not some wholesaler pretending to be using confusing terms to mislead you into thinking they are part owner. If a Realtor tells you they have a “Pocket Listing” you can pretty much assume they are holding it away from the attention of the market for a reason, sometimes that reason is so that they can make a higher payday when selling it to you. Ask yourself this question, why would a seller hire a Realtor and then tell them to not place it on the MLS in front of the largest number of buyers?

Sometimes, sellers want the fact they are selling to be held confidential in order to maintain their privacy for very reasons which is a legitimate reason for a pocket listing. A seller can choose to avoid the exposure of the MLS. Quite often though, the seller is not aware that the Realtor who has their “pocket listing” is holding it off the MLS. Because of this, many Multiple Listing Services now require the Realtor to have the seller sign a form stating they don’t want the property on the MLS.

Buyer Mindest is a huge factor in overpaying for properties. Some of the most common mindset flaws are “The Seller let me finance it” or "The Seller let me buy it" or "I won the multiple offers round". If you are the one willing to pay the most for an investment, are you really the “winner”? Here are three interesting examples of recent small multi-family sales as found on Zillow in the Tampa Bay area:

1022 Commodore St Clearwater, FL / Duplex sold for $549,900 (seller finance 15 years @ 5% int) Monthly Rent Income $2,720 - $1360 Monthly Expenses - $3,044 Debt Service (mortgage payment) = -$1,684.00 per month LOSS 900 San Christopher Dunedin, FL / Fourplex Sold $274,000 in 2015 and again at $460,000k Cash in 2018 $3,326 Monthly Rent Income - $1668.12 Monthly Expenses - $1728.57 Debt Service = -$70.69 or 4% Return 56 B street Maderia Beach, FL / Fourplex Sold for $405,650 (all 1 bedroom) $3,000 Montly Rent Income - $1500 Monthly Expenses - $2188.52 Debt Service = -$688.52 LOSS Going broke when purchasing a rental property will not impress your friends. Rushing your way to the closing table will lead to certain financial failure. Do ALL the math, this means allowing for all of the expenses and basing your purchase decision on actual numbers, not projected, proforma, estimated or any other “guesses”. Here is the simple formula:

Actual Rent minus Actual Expenses minus Debt service equals cash flow. You can’t fudge the expenses or the income, you can only adjust the purchase price or terms to “make” the numbers work.

Don’t get caught up in trying to make the numbers work by tweaking the income and expenses to force a deal to look good on paper. This holds especially true when you are using other people’s money in the deal, tweaking the numbers could be viewed as deceptive or even fraudulent. Instead, do your homework, complete your due diligence and if provided false or inaccurate information, insist on renegotiating if need be.

In the Mailbox Money Group Coaching, our students learn how to analyze deals in order for them to turn a steady profit over many years to come. The Mailbox Money system is an insurance against being taken advantage of by unscrupulous sellers and practitioners. As an educated investor, you remain a profitable one. Lessons are cheaper to learn in the classroom as compared to being learned in the field. To learn more about the program, head on over to http://MailboxMoneyMastermind.com