Is Big Better?

by: Ralph Marcus (Mark) Maupin, Jr.
At one time in my life I was buying 7-8 Houses a month, fixing them up and then reselling them. Then I got the bright Idea that if I can buy and sell 7-8 a month, I can buy and sell 80. This was a choice that eventually led me to Bankruptcy. This has not been that long ago. Twice in my life I have made a lot of money and then took on a large growth spurt and got a large learning experience in business failure. The last one resulted in bankruptcy. It is hard when things are going well to not be seduced by more is better. When you have something working for you, it is easy to become overconfident and start to think of multiplying it. As with things in life, you want to be sure when you take on something, that you complete it. “Pumping up the volume” puts you at risk of not having the structures and being set up to deliver on what you are committed to. You naturally encounter problems that are not present on the smaller scale. It is hard when things are going well to not be seduced by more is better. I had to learn personally that “Pride goeth before the fall”. The bottom line is that there are always good deals in Real Estate! I say measure your success one house at a time. Buy investor property—fix it up, resell it, rent, do a lease-option, but do it one house at a time. Multiple Purchases? One of the most common mistakes I see in business is where investors come into the business and think they need to do multiple houses at a time. Try this on: Try doubling the cost you think it will take to fix the property, doubling the time you think it will take to rehab the property and figure your holding costs doubled (insurance, mortgage payments, taxes, lights, gas, rehab cost). Great deals in Real Estate don’t come in houses fixed and ready to sell. The great buys come from houses that need work. If you are just getting started, stick to cosmetic rehabs (paint and carpet), Don’t take on major rehabs. It will take time to develop rehab crew. The most successful people I see in Real Estate take on doing houses one house at a time. Failures are great if you look at them and ask what action was missing would have made a difference. Hard money lenders? Pitfalls are using very expensive money. For years I ran a business financed on money from Real Estate Investors who are called “Hard money lenders” who look at collateral and loan money based on that interest can be 18% higher when you figure in the closing costs. When you get multiple properties in this condition you are going to have interest payments that are going to be double—triple what conventional financing is in Real Estate. Combine that with the common lie we tell ourselves that we can repair the house and put it back on the market for sale or rent in a short time. Your overhead would rise because you would need a staff to manage and rehab everything. Can you see this is a recipe for upset for everyone? Now if you are doing one house at a time---your overhead will probably stay very low, very little staff, you have limited you expenditure of time, money, and aggravation. At one time my overhead was + $50,000.00 per month. I had to depend on other people to do everything, including checking the work. The sale I was making was going 100% to payments and I kept telling myself I will turn it around tomorrow. Now I had a house not finished, and houses being lost in foreclosure and for taxes. Now I am a motivated seller and bankruptcy was looming large. My overhead was still there, I attempted to wholesale deals, so I decided I would no longer do find, repair, and resell homes. I will find great buys and sell them to other investors. Starting Over Basically I started my business over. It takes a great amount of time to get list of investment deals. This business is built on the concept you can borrow you way out of debt. It does not work. You have family, friends, business associates that get hurt and destroyed. I’m not saying this to tell you a sad story, but rather in the hopes out of sharing it, some one else can avoid the pain of my mistakes. To see what you can learn for yourself. I am 53 years old and starting over. I have the knowledge to build a business with the proper foundation. I teach Real Estate investing class now looking at pitfalls and what is needed to do one deal at a time. My advice to you on handling real estate transactions is : Use Title companies What can happen to you when you fail to get title insurance. We had a participant in one of our seminars. He purchased a house to fix it up. He invested over $40,000 into the home in both repairs and purchase price. When he went to refinance he found out the person he purchased the house from was not in the chain of title. In other words, he did not have a clear title. Whenever you purchase a home always close through a title company with title insurance on the property. Title insurance is insurance insuring the borrower or lender that they get the property with marketable title. The will only insure the property for the purchase price or for the amount of the mortgage. Use a Lender that makes good common sense. Interview lenders. Go to Real Estate Investor Clubs to find out from other investors who are the companies doing the best job. Is there risk when you use a lender that wants to cross collateralize loans or wants personal guarantees? One lender I know will get one-two year mortgages and demand a right to lean all the properties you own on the loan you are getting. Just beware if you are buying the property to fix up and resell there are things that you don’t always plan on like: twice as much rehab cost as you planned for, longer marketing time than you initially thought resulting in added holding costs, or maybe the market moves the wrong direction and you can’t sell so you rent it. Now one of your other properties or even your personal residence needs to be refinance. You now have lien showing against the property. Now what do you do? Think before you jump. If you have purchased the property right, you should be able to borrow money based on the equity of that property---not your home and other properties. This same lender will ask for a personal guarantee signed by you, your wife, and your partner. This personal guarantee allows his mortgage company to lean anything the partner and wife own. Not only that, but this particular lender demands that you use a Title Company he owns. Now when you want to sell another one of your houses and this same cross collateral loan will show up on any property you are selling. Now you are faced to use his title company and he won’t release his loan. Beware of putting yourself in a situation where you are using a person who controls the lending, title work, the appraiser, and Real Estate Company. Do you think if you had your title work placed with a company the Lender had ownership in you might run into a problem getting the documents released or have a clean closing at the same title company. Why risk letting human emotions drives a stake into your deals. Keep an arms length distance inside your dealings. If you are selling homes or wholesaling property, let the buyer find his own lender and make sure you get an independent title company. Make sure there is not a conflict of interest in the Title Company, Mortgage Company, and Real Estate Company. Keep the integrity in the deal. I am sure there are title companies, real estate companies, and mortgage companies, where there is common ownership that run very good businesses and can separate the conflicts of interests and profit centers. Make sure you receive proper disclosure of the common ownership. You can always look at the volume of business they are doing in each business and check with the state of Michigan Licensing Dept. for any complaints against the firm. The web-site is www.michigan.gov. Feel free to check out my Web Sites: Free Forms and Information: http://www.MegaEveningEvent.com , http://www.DetroitInvestmentHomes.com or http://www.MrLeaseOption.com