Let's Temper Expectations Of New Investors
Stuart UdisPro Member
Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votesLet's Temper Expectations Of New Investors
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Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
1yWhat new investors don't understand is that conceptually, at the highest level, real estate investing is about equity. You can expect cash flow to be about 5% of equity, so if you want to quit your W2 you need a fair amount of equity.
Equity is hard to come by. The least advantageous, but also most common source, is your down payment. Or you wait for appreciation, force equity by making improvements and you can also negotiate for equity. But neither one is easy or quick.
There are just way too many people hoping to buy a 100k property (and spend all their cash on the down payment) and then hope to generate some cash flow. The best case is $200 cash flow and poor appreciation; the most likely outcome is a trashed interior and an expensive eviction.
29 Replies
- Member since 2025 · 126 posts · 45 votes1y
@Stuart Udis new investor here. On the topic of LLc formation for liability purpose, theres a lot of talk about protecting you but I don't see people mentioning anything if you self manage the property which pulls you back in personally.
Any pointers on how to utilize Llc protection in this instance- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
@Maya Jones - exactly I have about 1,000 posts on it. If you are not using a third party PM that is a huge liability / risk.
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- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes1y
@Maya Jones an LLC for a first-time investor buying a small residential property is about as useful as a corporate jet is for your local plumber.
LLC's make sense for larger assets with 7 figure equity and are actually required by lenders for commercial financing. Your question is warranted; you get very little benefit and actual protection, but all the drawbacks. For example, now you are limited to commercial 5 year financing. Search LLC on BP, you'll find hundrets of posts with pres and cons.
- Member since 2025 · 126 posts · 45 votes1y
@Marcus Auerbach thanks for your input. What about the perspectice of keeping business separate from personal ? You need an llc to open a business account right?
or do you say to that, just open a separate personal account that you only use for the property? @Marcus Auerbach I don't agree. I think using LLC's is prudent, if you have any kind of personal asset base. Also, you can secure 30 year fixed rate DSCR loans.
granted, if you're a new investor with no money/assets, it doesn't matter. But your analogy comparing an LLC to a corp jet is not accurate
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes1y
Quote from @Maya Jones:
@Marcus Auerbach thanks for your input. What about the perspectice of keeping business separate from personal ? You need an llc to open a business account right?
or do you say to that, just open a separate personal account that you only use for the property?Yes, you definitly want to have a seperate bank account, just for bookkeeping sake alone. Some people set up an LLC as the PM company, which then is a seperate business, but does not own anything.
- Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes1y
What new investors don't understand is that conceptually, at the highest level, real estate investing is about equity. You can expect cash flow to be about 5% of equity, so if you want to quit your W2 you need a fair amount of equity.
Equity is hard to come by. The least advantageous, but also most common source, is your down payment. Or you wait for appreciation, force equity by making improvements and you can also negotiate for equity. But neither one is easy or quick.
There are just way too many people hoping to buy a 100k property (and spend all their cash on the down payment) and then hope to generate some cash flow. The best case is $200 cash flow and poor appreciation; the most likely outcome is a trashed interior and an expensive eviction.
- Member since 2025 · 40 posts · 13 votes1y
@Maya Jones In Texas and Iowa, you can file an Assumed Name form with your county for a business name that does not contain your personal name, ie Griifin Wood Ranch vs Ballard Ranch. We also got a Tax EIN number from IRS for business. Then you can get business accounts to match the name on your DBA.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Most people do not know how hard real estate is - especially to scale it. It is capital and time intensive. No different than running most types of businesses
7e investments53 Reviews - 1yBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
I agree that many people have unrealistic expectations when it comes to real estate investing. They consume a lot of content on social media who mention how 'passive' it is and how they will become wealthy in a few years.
Basit Siddiqi CPA4.880 Reviews - Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes1y
Those are just empty inquiries that never result in transactions.
- 1yJonathan BombaciBusiness MemberReal Estate Agent · Lowell, MA · Member since 2019 · 1k+ posts · 1k+ votes
Yes@Stuart Udis to all of this. We help around 100 new investors a year get started, and I cannot tell you how many come in with expectations shaped by a YouTube video, a weekend seminar, or a flashy social media reel. They hear about novations, subject to deals, or wholesaling with no money down and believe that is the norm. And while those tools can work in the right situations, they are not a business model for someone brand new.
I never want to be the person who shuts someone down, because I get the excitement. This is an amazing industry when you do it right. But most people need a little grounding. Go to a local meetup. Talk to investors who are doing deals in your market. There are people making real money in your hometown, but it does not look like the version being sold online. It looks like being patient, saving money, solving problems, and finding one good deal that moves you forward.
We manage about 1,000 units across Massachusetts, New Hampshire, and Maine. And every deal we do, big or small, we have our own money in the game. Even on large raises, we never sit on the sidelines. That idea that you can do real estate with no experience and no skin in the game was the beginning of the cycle we are watching now.
We host 12 Simplified Real Estate Meetups each quarter. They are posted here on the Events tab. I always recommend people go to a meetup when they are starting out. It does not have to be ours. Just go to any meetup. Get around people who are doing deals and you will quickly start to understand what is actually happening in the market. You can talk to someone all day long, but when they are face to face with others who are making this work in real life, it finally clicks.
- Real Estate Agent · MO & OK · Member since 2025 · 16 posts · 6 votes1y@Jonathan Bombaci, you will never be an instant success on YouTube. But you are speaking the truth about real estate investment. A wiser person than I told me to only invest in what you know and plan to hold it for 4 years. A guideline for sure. And a few hours on the Net does not give you knowledge. Another way to acquire knowledge is to hire individuals like you who can guide them until they become knowledgeable. Then they stay because of a trusted relationship. Keep up the good work!
Quote from @Jonathan Bombaci:
Yes@Stuart Udis to all of this. We help around 100 new investors a year get started, and I cannot tell you how many come in with expectations shaped by a YouTube video, a weekend seminar, or a flashy social media reel. They hear about novations, subject to deals, or wholesaling with no money down and believe that is the norm. And while those tools can work in the right situations, they are not a business model for someone brand new.
I never want to be the person who shuts someone down, because I get the excitement. This is an amazing industry when you do it right. But most people need a little grounding. Go to a local meetup. Talk to investors who are doing deals in your market. There are people making real money in your hometown, but it does not look like the version being sold online. It looks like being patient, saving money, solving problems, and finding one good deal that moves you forward.
We manage about 1,000 units across Massachusetts, New Hampshire, and Maine. And every deal we do, big or small, we have our own money in the game. Even on large raises, we never sit on the sidelines. That idea that you can do real estate with no experience and no skin in the game was the beginning of the cycle we are watching now.
We host 12 Simplified Real Estate Meetups each quarter. They are posted here on the Events tab. I always recommend people go to a meetup when they are starting out. It does not have to be ours. Just go to any meetup. Get around people who are doing deals and you will quickly start to understand what is actually happening in the market. You can talk to someone all day long, but when they are face to face with others who are making this work in real life, it finally clicks.
- South Portland, ME · Member since 2017 · 13 posts · 10 votes1y
@Chris Seveney Can you say more about why not having a third party PM is a risk? I'm a moderately experienced investor and I self-manage. I'd love to hear more about why you think that's a risk. Pointers to your posts about it would be great too. Thanks!
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes1y
Quote from @Tim McIver:
@Chris Seveney Can you say more about why not having a third party PM is a risk? I'm a moderately experienced investor and I self-manage. I'd love to hear more about why you think that's a risk. Pointers to your posts about it would be great too. Thanks!
If tenant complains about something and you do not fix it in time and there is an injury - you will be sued personally as you (human) did not fix it. Even if you have a LLC, the LLC would get sued but the person who is responsible is you.
7e investments53 Reviews - Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes1y
Quote from @Chris Seveney:
Quote from @Tim McIver:
@Chris Seveney Can you say more about why not having a third party PM is a risk? I'm a moderately experienced investor and I self-manage. I'd love to hear more about why you think that's a risk. Pointers to your posts about it would be great too. Thanks!
If tenant complains about something and you do not fix it in time and there is an injury - you will be sued personally as you (human) did not fix it. Even if you have a LLC, the LLC would get sued but the person who is responsible is you.
Agree, especially if you have been negligent you have no legal protection from the LLC. Combine that with what @Stuart Udis said: many investors focus on preparing for the liability event while mismanaging the property - focus should be on prevention in the first place.
1.) Interview tenants well
2.) Have a good (court-tested) lease in place
3.) Keep your property in good repair
4.) Have property insurance in place (with liability insurance)
5.) Umbrella insurance to cover above and beyond
6.) Keep your property financed (less equity to go after)
7.) Avoid dangerous activities: let one tenant mow the lawn on a multi (multifamily)
8.) Use a professional service for snow and ice removal (multifamily)
I have been asking if anyone on BP has been saved by an LLC - or even heard of a story. It had over 100 replies and I don't think there was a single case. I think there was someone who had a car accident and then they tried going after his RE..https://www.biggerpockets.com/forums/926/topics/1151922-than...
@Maya Jones it's not wrong to have LLC's, I have several, but the question is really if it needs to be a priority when you are starting out.
Quote from @Chris Seveney:
Quote from @Tim McIver:
@Chris Seveney Can you say more about why not having a third party PM is a risk? I'm a moderately experienced investor and I self-manage. I'd love to hear more about why you think that's a risk. Pointers to your posts about it would be great too. Thanks!
If tenant complains about something and you do not fix it in time and there is an injury - you will be sued personally as you (human) did not fix it. Even if you have a LLC, the LLC would get sued but the person who is responsible is you.
You shouldn't have to explain it.
Self-managing is just straight liability and an awful exchange of time. Defer that nonsense and create a liability bridge.
To the point of the thread-- right now "new" investors need to know RE is a preservation and growth of cash game. Not a cash flow game. It's why I got in after the run up and as we mean revert. No quick money here. 7-10 year game to stabilize, yes I get value-add properties and negate my cost basis there are strategies to create the portfolio among other things. This isn't quick money, this isn't buy and nothing goes wrong. This isn't for shallow pockets and folks who don't understand physical asset investing and how hairy it gets which leads to the aforementioned liability point.
The K shaped economy is going to have some new RE investors, that's 99% not on this board. It's simply a strategy to store their wealth and grow it over time against the dollar via FRM. It's not the yesteryear investors, there's a whole new wave. Household formations, family formations, home affordability be damned.
Quote from @Stuart Udis:
Between what I read in these forums and new investors I speak with it's become apparent expectations must be tempered. Believing you will begin hunting for bargain properties across the country where multiple qualified contractors will be kicking down the door wanting to bid the $25K rehab while also serving as a free home inspector is wishful thinking. Assuming a flashy excel pro-forma and your "home run" purchase will have private lenders fighting to fund your deal will leave you disappointed. Running the renovations on teaser-rate credit cards will end badly for many. Calling a Wyoming LLC and an umbrella policy your risk management strategy is not going to cut it. Together this is social media fiction, not real estate investing.
If you look at long time, high post, non real estate agent posts I see many posts that discuss the current RE market being challenging, RE being a long play, the challenges of low cost OOS markets, etc.
I suspect nearly half my posts discuss the challenges of the current RE market. How my current offers would have never been made prior to 2022, how property values are at an all time high compared to rent (per 2 separate recent studies comparing rental costs versus home ownership).
My point is there are many BP posts that mention the challenges or the current RE market. Granted this is countered by the various RE agents (Ohio RE Agent cronies likely being the worse) touting their market even if it has declining population and appreciation or rent growth has not kept up with inflation.
If it is unclear: the current RE market has challenges including rates near the highest for this century, property values being near all time high with respect to rent (so all time lowest cash flow for LTR), some jurisdictions enacting laws that are anti RE investor, the competition on flips being all time high and margin on flips being at all time low in many/most markets.
None of this implies that it is impossible to make money with real estate, but it has challenges.
Good luck
- Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes1y
@Maya Jones As a real estate investor its prudent to be mindful of liability however the first question all real estate investors should ask themselves: How do I prevent premises liability claims, avoid construction or title defects, landlord/tenant disputes & payment and performance disputes with contractors/vendors? More than likely if a conflict arises in your real estate business it will be attributable to one of those occurrences.
Knowing this, all investors should set out on a daily basis with the goal of eliminating premises liability exposures, exceed the implied warranty of habitability standards; be responsive and reasonable with tenants; Screen and work with- licensed and appropriately insured contractors, property managers, brokers; Use contract management to shift risks and defense; avoid your own conduct and conduct of others that arises to negligence and certainly gross negligence. That is proactive asset protection and truthfully the best and most practical form of asset protection. Whether you are self-managing or utilizing a property manager, this is the standard to strive for.
@Tim McIver I believe Chris' recommendation to utilize a property manager is the belief they will be better suited to competently provide e proactive asset protection services because most investors fail mightily living up to that standard.
The other thing I will add is LLC's are my preferred choice for owning investment real estate but the LLC has to be operated correctly & the greatest benefits an LLC provides are business planning related and a greater likelihood of keeping your name out of a docket. The goal however is to avoid the liability event from occurring in the first place because the real estate performs best when managed competently, insurance premiums remain lower and more time can be spent towards business development rather than putting out constant fires. Unfortunately, most investors spend most resources preparing for the liability event to occur while mismanaging their real estate. Those who are prudent with their management are also best prepared when the liability event occurs because at the end of the day, **** happens. It's just the reality of this business.
- Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes1y
@Maya Jones umbrella policies are great protection, I have 2 million on my own investments. LLC's really only work when multi member for example a partnership I have we run as an LLC. It's much harder to pierce an LLC that has multiple partners and is ran as a true separate entity.
- Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes1y
Quote from @Stuart Udis:
Between what I read in these forums and new investors I speak with it's become apparent expectations must be tempered. Believing you will begin hunting for bargain properties across the country where multiple qualified contractors will be kicking down the door wanting to bid the $25K rehab while also serving as a free home inspector is wishful thinking. Assuming a flashy excel pro-forma and your "home run" purchase will have private lenders fighting to fund your deal will leave you disappointed. Running the renovations on teaser-rate credit cards will end badly for many. Calling a Wyoming LLC and an umbrella policy your risk management strategy is not going to cut it. Together this is social media fiction, not real estate investing.
Well said.
It was in the podcast and I saw it on HG TV, it must be true! Are you an investor or a speculator? Regardless of which you fancy yourself, the market will tell you how it is. We are at an inflation point. The economy and RE could brake either way. Frankly, I don't care which way it goes. There is money to be made, it is a long game. I can live well on singles and doubles. If you are in the home run business, you should take the class at the hotel by the airport. Taught by the guy with the perfect teeth and smile. Many of the properties I bought years ago are now home runs. Inflation and mortgage pay-down is my friend.
In the words of Warren Buffet, "My favorite holding period is forever."
- Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes1y
Quote from @Stuart Udis:
Between what I read in these forums and new investors I speak with it's become apparent expectations must be tempered. Believing you will begin hunting for bargain properties across the country where multiple qualified contractors will be kicking down the door wanting to bid the $25K rehab while also serving as a free home inspector is wishful thinking. Assuming a flashy excel pro-forma and your "home run" purchase will have private lenders fighting to fund your deal will leave you disappointed. Running the renovations on teaser-rate credit cards will end badly for many. Calling a Wyoming LLC and an umbrella policy your risk management strategy is not going to cut it. Together this is social media fiction, not real estate investing.
Well said.
It was in the podcast and I saw it on HG TV, it must be true! Are you an investor or a speculator? Regardless of which you fancy yourself, the market will tell you how it is. We are at an inflation point. The economy and RE could brake either way. Frankly, I don't care which way it goes. There is money to be made, it is a long game. I can live well on singles and doubles. If you are in the home run business, you should take the class at the hotel by the airport. Taught by the guy with the perfect teeth and smile. Many of the properties I bought years ago are now home runs. Inflation and mortgage pay-down is my friend.
In the words of Warren Buffet, "My favorite holding period is forever."
- 1yShuff MauldinPro MemberInvestor · MS AL TN, GA · Member since 2019 · 74 posts · 46 votes
yup. there's risk and if there weren't any you wouldn't make any money. Do your math as best you can and then act knowing everything won't be perfect
- MD/DC · Member since 2024 · 1k+ posts · 1k+ votes1y
So to clarify...my dream of being my own boss, spending $5k on a weekend course, purchasing 30 doors with no money down, all multifamily in Ohio of course, and quitting my W-2 job by the end of the year might actually take longer and require some money upfront? ;)
Great thread and hopefully it will spark critical thinking from new investors.
- 1yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 13k+ posts · 9k+ votes
@Stuart Udis you were so fed up with this topic that you forgot to mention all the newbies buying affordable/cheap Class C/D assets, expecting Class A/B results - because they read/watched something from 5+ years ago!
Logical Property Management4.9462 Reviews - Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes1y
Since it was raised, it's important to clarify the limited instances where umbrella coverage is triggered. It's a mistake for investors to view umbrella coverage as an asset protection strategy. First, umbrella coverage is merely additional GL coverage. It only becomes relevant in the event the primary GL policy's limit is exhausted. Since most GL policies include at least $1M of coverage, triggering the umbrella coverage usually means a significant premises liability/personal injury occurrence.
Umbrella coverage provides no relevancy to landlord/tenant disputes (outside of severe tenant related premises liability occurrences), contractual or performance disputes or defects. If your asset protection plan is comprised of purchasing umbrella coverage there are significant gaps in risk mitigation procedures and if umbrella coverage is ever triggered expect premiums to skyrocket, likely pushing you into surplus lines of coverage & your time drained by litigation related tasks paralyzing your ability to effectively operate and grow your business.
- 1yRene HosmanPro MemberRental Property Investor · Denver, CO · Member since 2024 · 583 posts · 655 votes
Quote from @Stuart Udis:
Between what I read in these forums and new investors I speak with it's become apparent expectations must be tempered. Believing you will begin hunting for bargain properties across the country where multiple qualified contractors will be kicking down the door wanting to bid the $25K rehab while also serving as a free home inspector is wishful thinking. Assuming a flashy excel pro-forma and your "home run" purchase will have private lenders fighting to fund your deal will leave you disappointed. Running the renovations on teaser-rate credit cards will end badly for many. Calling a Wyoming LLC and an umbrella policy your risk management strategy is not going to cut it. Together this is social media fiction, not real estate investing.
SUCH a great point Stuart! I think we try our best to be realistic here at BP but there's a lot of "advice" out there and it's good to remember what is real vs what is hype. And also important to remember what advanced moves are that work for experienced investors versus what is acceptable risk for a newbie.
The truth is, the more valued experience you get, the easier investing becomes, the more opportunities come your way, and it snowballs to a point where you're often deciding between deals instead of trying to find a deal. But what I so often see is people looking for THEE deal to start rather than trying to find something that's solid, that get's them started, and allows them to get into the game.
- Real Estate Agent · MO & OK · Member since 2025 · 16 posts · 6 votes11mo
Yes,self-managing is a bad idea for most. It is easy to look at the 6-10% for management fees as extra income. You have to look at it this way. You buy the investment for the preservation of your money and its growth and the management fee is earned by someone doing their job. Their job is to preserve your asset and to see it grow. Now you have someone helping you. Let the experts be experts. Just because you have money to invest doesn't mean you know how to manage the asset you purchased.
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