Real Estate Addict: Why I Can’t Stop and Why I Should Start

The full payment technique

So how does the down payment technique work when buying a house with cash? First of all, let me repeat that I didn’t really have any cash, but I did have a significant amount of equity from Terry’s home and several houses I owned pooled together to give me a substantial cash down payment. Both banks and mortgage companies will accept money from a home equity line of credit as cash to buy a home. At least they did in 1997 under the financial guidelines of the time. The thing to remember about mortgages and loans is that guidelines are constantly changing, so this technique I used in 1997 may or may not be able to be used in the future. Whether or not it can be reused doesn’t really matter to me as I believe sooner or later there will always be a way to buy real estate with a limited down payment. There will always be a technique for acquiring real estate, but I’m not entirely sure exactly how it will be done in the future.

I started buying houses in the Mayfair section of Philadelphia priced in the $30,000 to $40,000 per house price range. I would buy a house with three bedrooms and one bathroom on the second floor with a kitchen, dining and living room on the first floor and a basement. What we call a row house in Philadelphia would consist of a front porch and a backyard the width of the house. Most row houses in Philadelphia are less than twenty-two feet wide. For those of you who aren’t from Philly and can’t imagine what a row house is like in Philly, I suggest you watch the movie Rocky. Twenty-two houses on each side of each block will really test your ability to be a neighbor. The things that will typically cause an argument with your Philadelphia neighbors often stem from parking, the noise your kids are making, where you put the trash cans, parties, and the appearance of your home.

In 1998, my girlfriend and I moved together to a suburb of Philadelphia called Warminster. After living on a street in Tacony, just like Rocky, I was really hoping to have space between my house and my next door neighbor. I told Terry not to even think about talking to the people who lived next to us. I told him if one of them comes with a fruitcake, I’ll take it and throw it like a football right into his backyard. I think he suffered from Philadelphia row house syndrome. My new neighbors in Warminster turned out to be wonderful people, but it took me eighteen months to be willing to learn that.

So you just bought your townhouse for $35,000 in Mayfair, and after $2,000 in closing costs and $5,000 in repair costs, you find a good tenant who wants to rent the house. After renting the house with a positive cash flow of $200 a month, she now has $42,000 outstanding on her home equity line of credit that she will have to pay off. When I bought the house, she didn’t get a mortgage since he only bought a house with cash as they say in the business. All the money I spent on this house was spent from the home equity line of credit.

The move now is to pay off your home equity line of credit so you can get back to it. Now we go to a bank with your property settled and tell the mortgage department that you want to do a cash-out refinance on your investment property. It helps to explain that the neighborhood you buy your property in should have a wider range of prices, like the Mayfair neighborhood did in the mid-90s. The price of houses in Mayfair is quite unusual, as you would see a difference $3,000 worth of houses from block to block. This was important when doing a cash-out refinance because it’s pretty easy for the bank to see that I just bought my property for $35,000 regardless of the fact that I did a lot of repairs. I could justify the fact that I spent more money on my house to fix it up, and by putting in a tenant, it was now profitable real estate from an investment standpoint.

If I was lucky, like many times, I did this Mayfair home buying system and the appraiser would use houses a block or two away and come back with an appraisal of $45,000. Back then, there were programs that allowed an investor to buy a house with a 10 percent down payment or put it down as equity by doing a 90 percent cash-out refinance that put me back about $40,500. Using this technique allowed me to recover most of the money I invested in the property. I basically paid only $1,500 for this new house. Why did mortgage companies and appraisers keep giving me the numbers I wanted? I guess because they wanted the business. I’d just tell the bank that I need to get this to $45,000 or I’ll just keep it funded as it is. They always seemed to give me what I wanted within reason.

This entire process took three to four months, during which time I could have saved a few thousand dollars. Between the money I saved from my job and investments and refinancing out of cash, I had replenished most or all of my funds from my home equity line of credit which was now almost at zero to start the process all over again. And that is exactly what he intended to do. I used this system to buy four to six houses a year using the same money to buy house after house over and over again. Actually, the technique is a no down payment or low down payment technique. At that point, I had maybe $60,000 in available funds to use to buy houses outside of my HELOC, so I would buy a house and then replenish the money. It was an excellent technique that was legal, and I was able to see my dream of being a full-time real estate investor becoming an eventual reality even though it wasn’t there yet.

During the years from 1995 to 2002, the real estate market in Philadelphia made gradual increases of perhaps 6 percent each year. I started tracking my net worth which was 100 percent equity, meaning I had no other forms of investments to look at when calculating my net worth. Generally speaking, the first five years of my real estate career did not go well due to the poor decisions I made when buying buildings and the market downturn. Also, my lack of knowledge and experience in repairs made it a rough one. The second five years of my real estate career that I just finished explaining didn’t make much money either. I supported myself primarily through my sales career, but I could definitely see the writing on the wall that real estate would be my full-time job in the future.

Real Estate Professionals of America

I own an office building that is tenanted by a real estate company called Realty Professionals of America. The company has an excellent plan where a new agent gets 75 percent of the commission and the broker gets only 25 percent. If you don’t know, this is a good deal, especially for a new real estate agent. The company also offers a 5 percent sponsorship fee to the agent who sponsors them on every deal they make. If you bring a person who is a real estate agent to the company you have sponsored, the broker will pay you a sponsorship of 5 percent of the broker’s end so that the new real estate agent you sponsored can still earn 75 percent of commissions. In addition to the above, Realty Professionals of America offers to increase the Realtor’s commission by 5 percent after cumulative commission benchmarks are reached, up to a maximum of 90 percent. Once a commission benchmark is reached, an agent’s commission rate is only reduced if commissions in the following year do not meet a lower benchmark amount. I currently keep 85 percent of the commissions on all my trades; In addition, I receive sponsorship checks for 5 percent of the commissions that the agents I sponsor earn. If you would like more information on how to be sponsored into Realty Professionals of America’s wonderful plan, please call me directly at 267-988-2000.

Get my real estate license

One of the things I did in the summer of 2005 after I quit my full-time job was make plans to get my real estate license. Getting my real estate license was something I always wanted to do, but never seemed to have the time to do. You’ve probably heard that excuse a thousand times. People always say they’re going to do something as soon as they find the time to do it, but they never seem to find the time, do they? I try not to allow myself to make excuses for anything. So I decided before I quit my full-time job that one of the first things I would do would be to get my real estate license. I enrolled in a school called the American Real Estate Institute for a two-week full-time program to get my license to sell real estate in the state of Pennsylvania. Two fantastic guys with a world of experience taught the class and I thoroughly enjoyed my time there. Immediately after completing the course at the American Institute of Real Estate, I booked the next available day offered by the state to take the state exam. My teachers’ advice to take the test immediately after class turned out to be an excellent suggestion. I passed the exam with flying colors and have since used my license many times to purchase real estate and cut expenses. If you are going to be a full-time real estate investor or a commercial real estate investor, then you almost have to get licensed. Although I know some people who do not believe this, I am convinced that it is the only way.

I worked on a $3 million deal where the commission to the buyer’s real estate agent was $75,000. At the time my broker took a stock, he was walking away with a commission of $63,000 on that deal alone. With the average annual cost of being a real estate agent being around $1200 per year, this one deal alone would have paid for my real estate license for fifty-three years. Not to mention all the other fringe benefits like having access to the multiple listing service offered to many real estate agents in this country. While there are other ways to gain access to multiple listing services or other similar programs, a real estate license is a great way to go.

Some of the negatives I hear over and over again about having a real estate license is the fact that you have to disclose that you are a real estate agent when buying a home if you are representing yourself. Maybe I’m missing something, but I don’t see this as a negative at all. If you’re skilled in the art of negotiation, it’s just another hurdle you have to deal with. I guess you could end up in a lawsuit where a court of law could assume that since you’re a real estate agent, you should know all these things. I don’t spend my life worrying about the million ways I can be sued any more than I worry about getting hit by a car every time I cross the street.