Strategies by the experts?

ok so a year ago I formed an S corp with a partner in hopes of investing in RE. Then the **** hit the fan and there is yet to be a bottom... I got into this with hopes of purchasing cheap foreclosures and REOs but my God, when half the homes listed are now a foreclosure one does not know where to even jump in... very similar to the psychology of the stock market right now. With that said I would like to know how to build a nice portfolio of rentals for long holds and ultimately how you guys make money on them with the cash flow. I understand real estate builds wealth over the long haul and Im def not in this for the guru get rich quick BS. But how does one say that $100-200 positive cash flow is good? I can buy stocks that are much more liquid and that pay me dividends that outpace that so wheres the appeal to real estate, especially if youre not sure if your property will even appreciate? obviously, like stocks this is a game of leverage but I would essentially have to have 100 properties flowing $100/mnth to even get excited about the return and that seems to be hard to achieve... so REAL strategies on building wealth in this game?

Edited: 06/26/2010 at 06:22AM by Jordan S.

Christian Malesic

Real Estate Investor · Harrisburg, Pennsylvania

717 posts
810 Influence
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Icon_minipost Nov 12 '08, 11:40 PM

It is not as important to "try to catch the bottom" as it is to get started, learn some real-life lesson, and start making money.

Do not let the overwhelming nature of things take you by storm. Find a property that meets your needs. Research the area, the rents, the costs, and assemble the data. From there you can determine what your buy price should be. Put in an offer. Repeat.

Of course, we could write entire books on this topic, as many others have done. You could ask, what about financing? Or, how do find tenants? You could ask should I paint or paper? Do I update the kitchen?

These topics are all covered here in the various forums. Do a little reading and post back with more specific questions and we will try to guide you further.

BTW, $100 per unit per month is GOOD. Can you do better? Certainly. Most of us investors have had that once-in-a-lifetime killer deal come along. Are you going to wait for it? Or get started now with profitable investments that help you learn how to become a good REI and landlord?

Edited: 06/26/2010 at 06:22AM

Christian Malesic

Real Estate Investor · Harrisburg, Pennsylvania

717 posts
810 Influence
5 Awards

Icon_minipost Nov 12 '08, 11:50 PM

Also, remember that you would not need to have "100 properties flowing $100/mnth to even get excited" - you would only need 100 units to use your numbers of $10k a month positive cash flow). There may be 2 or 4 or 104 units in a particular property.

We invest in primarily multi-family units. Our model is 2 to 4 units per building. Right now we have only 2 properties in our inventory with 1 unit. 3 properties have 3 units. The rest of the properties have 2 units. If you exclusively invested in duplexes or doubles (over-unders), you would need only 50 to meet your excitement level. If you only purchased quads, you would need only 25.

Plus, rents go up. As a rule they go up faster than expenses - not by much, but up none-the-less. So, $100 becomes $105 in a few years. Then $120, etc.

On top of that, if you purchase 25 properties don't you think that some of them will cash flow HIGHER than $100 per unit, if you consider $100 your bottom? Thus, you might need only 18 to 22 to meet your excitement goals.

Edited: 06/26/2010 at 06:22AM

Michael Rossi

Real Estate Investor · Ohio

4587 posts
14256 Influence
14 Awards

Icon_minipost Nov 13 '08, 01:18 AM

Jordan,

First, I would like to say that real estate is not the be-all and end-all of life. If you can make more money doing something else, by all means do it. The only reason to be in real estate is to make money. If you can't maximize your return with real estate, don't do real estate.

Having said that, I would certainly question your assertion that you can find stocks with dividends that outpace real estate. I have several million dollars worth of real estate that I bought almost entirely without my own money. Can you buy millions of dollars of stock without using your own money? My return is essentially infinite, since I don't have my own money invested. Is your dividend return infinite or is it infinitely smaller than mine.

Furthermore, to get that $100 per month positive cash flow, you must buy property at a discount. When you buy at a discount, you gain instant equity. Additionally, as time goes by, the tenants pay down your principal for you. BTW, profits on stock trading are taxed as ordinary income if you are a trader and capital gains if you're in for the long term. With rentals, the government allows you to depreciate the property even though it normally appreciates.

So, I'm afraid that I can't quite agree that stocks offer a better return than rental properties. I trade stocks too, and I've never gotten an infinite return on my stock trading.

Mike

Edited: 06/26/2010 at 06:22AM

Dave P.

Real Estate Consultant

826 posts
315 Influence
4 Awards

Icon_minipost Nov 13 '08, 01:25 AM

Jordan,

I think it was you who posted a comment on my BP blog stating that now was not a good time to buy RE because the market hasn't bottomed yet.

I suggest you rethink that position. Not that the market has bottomed, but that the "bottom" of the market really has nothing to do with anything.

Lemmings are waiting for the bottom.

Edited: 06/26/2010 at 06:22AM

Jordan S.

Real Estate Investor · new york, NY

125 posts
37 Influence
1 Award

Icon_minipost Nov 13 '08, 03:20 AM

Im not looking for a true rock bottom to the market but I am looking for a steady turnaround instead of throwing money into an unstable market when no one knows whats next. fear builds more fear and it is right to be greedy when others are fearful but when does common sense come into play? sure that rental property for 75x the rent looks sweet and makes sense when doing the numbers but hey what if next year it can be had for only 50x?? I like to always factor in opportunity cost when investing...

Edited: 06/26/2010 at 06:22AM

Harrison Painter

· Indianapolis, Indiana

762 posts
1316 Influence
9 Awards

Icon_minipost Nov 13 '08, 03:39 AM

Words to live by:
Lead, Follow, or Get out of the way!

Smart investors want the unstable and low market to stay with us for a few years. We really do not care about a bottom in bad times, or the top in good times. We care about good investments....Period!

During this cycle, we will be able to pick up all of the great deals that everybody else is too afraid to purchase.

Same thing with stocks......There are plenty of great companies that are simply a victim of the market right now. Plenty of companies that will make people extremely wealthy when the market corrects itself.

Buy Low, Cash Flow, and Sell High!

Edited: 06/26/2010 at 06:22AM