Real Estate Broker · Louisville, KY · Member since 2014 · 362 posts · 232 votes
Im looking to invest but want to do it all cash out of pocket. Is there anyone here who started working that way with say 15-25k? Sweat equity is no problem for me. Should I be scouting forclosure sales on the courthouse steps? buying micro condos?
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y
@Jay Leisten Remember those questions I listed above? I'm going to fill in the blanks for you based on a typical property:
Typ. Property:
$60,000 ARV (either when you buy or down the road) $45,000 Cost to buy/rehab/close...also = 75% ARV $ 9,000 20% of Cost (DP) $ 500 Cash Flow per month with NO DEBT 9 years How long it takes to get the next $45k to buy next property all cash ($5k/yr)
Here is the list of questions you need to ask, then compare the answer from the 3 options:
Q1 - How much out pocket (cash) am I putting in? Q2 - How much cash am I getting back...what is my cash flow? Q3 - How long will it take before I break even, and actually making money...see Q1 & Q2. Q4 - How long will it take before I have the means (cash) to go onto my next property? Q5 - What is my Cash on Cash Return? Q6 - How long could it take to acquire 10 properties? Q7 - How much money would you end up spending for those 10 properties? Q8 - How long would it take to break even...as in all the cash you put in, you got back?
Here are your 3 options to buy/rehab:
Option1 - Buy all cash, and carry no debt. Q1 - $45k Q2 - $6k/yr Q3 - 7.5 years (assuming no repairs, not vacancies, no problems) Q4 - 9 years (assuming $5k/yr) Q5 - 13% Q6 - 90 years (9 years per property) Q7 - $450k ($45k/property...not counting inflation) Q8 - 75 years (7.5 years per property)
Option 2 - Buy using cash for 20% down payment & financing the rest. Q1 - $9k Q2 - $3.75k/yr Q3 - 2.4 years (assuming no repairs, not vacancies, no problems) Q4 - 2 years Q5 - 42% Q6 - 5 years Q7 - $90k Q8 - 22 yrs +/-
Option 3 - Buy all cash, then refinancing to get all your cash back out within 6 months. Q1 - $45k Q2 - $48.35k = $45k + $3,35 in CF Q3 - 3 - 6 months...when you refinance Q4 - 3 - 6 Months...when you refi Q5 - 107% (remember, you're getting all your cash back + CF Q6 - 2.5 - 5 years Q7 - $0 When you refi that last property, you get your original cash back. Q8 - Your ahead as soon as you refi.
Investor · Fort Wayne, IN · Member since 2014 · 1k+ posts · 515 votes
11y
@Jay Leisten I have bought house for 1k put 10k in them and rented them (could have put much less in them, but we have high standards). It is very doable depending on your market. I would get a list of condemned property from the code enforcement and send them all letters, but I like to rehab anything we are going to have long term. I can give you some pointers if needed.
Investor · Rochester, NY · Member since 2012 · 316 posts · 102 votes
11y
@Jay Leisten I agree with @Ben Leybovich on this one. It is hard to flip a deal with that type of capital all cash and make a profit.
You could consider two options different from your original plan:
1. Find a HML or Private Lender to bankroll a $50k property that may only need $10k of material and the rest is your sweat equity. This would allow you to put $10k down (will be required by most HML) and then the other $10k into the property
2. Partner with another investor where they put up the cash for the purchase and you put in the cash and sweat equity for the rehab.
Otherwise you need to find a seller that would sell it to you with seller financing but without significant marketing budgets and expertise this is hard when you are starting.
Real Estate Broker · Louisville, KY · Member since 2014 · 362 posts · 232 votes
11y
Thanks Ben & Jeremy!
In my market Im seeing duplex to quads in C(?) quality areas that need some upgrades ( fading roof, vacancies etc) for starting around 20k a door. just wasnt sure if thats too risky for 450-550 a door rents?
Real Estate Broker · Louisville, KY · Member since 2014 · 362 posts · 232 votes
11y
thanks Dave & Mark,
I'm caught up on the podcasts at this point and have read the quick guide, Rich Dad/Poor Dad, and am looking at JScotts book in the next few weeks. Brandons is on the schedule soon as well.
Just to clarify, a large part of my strategy was to make a purchase like this every 6-9 months, so that at 4-5 years Im holding 10-15 properties 100% after repairs/marketing cash flow. At that point I would likely upgrade to higher value property by selling the group off?
Residential Real Estate Agent · Salt Lake City, UT · Member since 2014 · 156 posts · 50 votes
11y
One thing to keep in mind is your CoC return. Your return will be higher by using leverage and will allow you to accelerate the process if you plan to roll your cash flow back into investments.
Investor · Wynne, AR · Member since 2014 · 12 posts · 3 votes
11y
May try what I call the "wealth snowball"!
Buy 1 with minimal financing, do everything you can to pay it off ASAP, then buy #2 and pay it off with income from 1 & 2, & so forth! I think once you're comfortable with leverage, you'll be well on your way!
Here is the list of questions you need to ask, then compare the answer from the 3 options:
Q1 - How much out pocket (cash) am I putting in? Q2 - How much cash am I getting back...what is my cash flow? Q3 - How long will it take before I break even, and actually making money...see Q1 & Q2. Q4 - How long will it take before I have the means (cash) to go onto my next property?
Here are your 3 options to buy/rehab:
O1 - Buy all cash, and carry no debt. O2 - Buy using cash for 20% down payment & financing the rest. O3 - Buy all cash, then refinancing to get all your cash back out within 6 months.
Real Estate Broker · Louisville, KY · Member since 2014 · 362 posts · 232 votes
11y
Joe, Matt & Cody,
I've been a Dave Ramsey guy since '99 thus the debt free thought process. I have loosened up over time. My wifes family has been in real estate development in Miami, and cycled boom/bust so shes in constant fear of us joining that club.
Make sense for the Cash only process?
MATT: That process is exactly what I would do left to my own devices, and over time IF the comfort level improves with it. That is what I will do.
Investor · Denver , CO · Member since 2011 · 129 posts · 59 votes
11y
I agree with Joe. WHY. Obviously over extended is very bad However if you Have a choice of making 5% on 25k or 100k. Which do you want. When you calculate you roi there is a big diference
Valrico, FL · Member since 2012 · 1 post · 2 votes
11y
JV with a cash partner. They bring the cash to the table. You provide the deal, manage the rehab, and the consequent rental. Split the monthly rents 50/50. You may even charge a small property management fee. Agree to hold for a minimum amount of time. ( ex. 5yrs) You split the back side profits on the resale. Assuming market arbitrage on your acquisition, your JV partner can expect about 12%+ ROI and you will be debt free through the process with an infinity ROI.
Residential Real Estate Agent · Salt Lake City, UT · Member since 2014 · 156 posts · 50 votes
11y
@Jay Leisten I respect your view on the debt free way of doing things. However, I feel that as most of the stuff Dave Ramsey teaches is for getting out of bad debt. As Robert Kiyosaki teaches, there is a difference between bad debt and good debt. If you can harness and use good debt to further your wealth, you can accelerate the process. I use to think the same thing about "all cash", however, after reading and running the numbers time and time again, it really just makes sense to use leverage. We all have different goals and ways to get there but it's just something to think about.
It sounds like properties are cheap enough in your area that you could do it and make it work.
Realtor · Charlotte, NC · Member since 2014 · 935 posts · 467 votes
11y
@Jay Leisten stick with your principles. Btw, I've never met any "good debt". (I'll get a lot opposition from this crowd) I have found some "useful" debt however. You can become an "investor" by partnering with others. Put up the $ for the purchase of a low end flip. Put up the $ for a rehab jv. I would recommend the book, "the Richest Man Who Ever Lived" by Steven Scott., which was recommend in an earlier BP podcast.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y
@Jay Leisten Remember those questions I listed above? I'm going to fill in the blanks for you based on a typical property:
Typ. Property:
$60,000 ARV (either when you buy or down the road) $45,000 Cost to buy/rehab/close...also = 75% ARV $ 9,000 20% of Cost (DP) $ 500 Cash Flow per month with NO DEBT 9 years How long it takes to get the next $45k to buy next property all cash ($5k/yr)
Here is the list of questions you need to ask, then compare the answer from the 3 options:
Q1 - How much out pocket (cash) am I putting in? Q2 - How much cash am I getting back...what is my cash flow? Q3 - How long will it take before I break even, and actually making money...see Q1 & Q2. Q4 - How long will it take before I have the means (cash) to go onto my next property? Q5 - What is my Cash on Cash Return? Q6 - How long could it take to acquire 10 properties? Q7 - How much money would you end up spending for those 10 properties? Q8 - How long would it take to break even...as in all the cash you put in, you got back?
Here are your 3 options to buy/rehab:
Option1 - Buy all cash, and carry no debt. Q1 - $45k Q2 - $6k/yr Q3 - 7.5 years (assuming no repairs, not vacancies, no problems) Q4 - 9 years (assuming $5k/yr) Q5 - 13% Q6 - 90 years (9 years per property) Q7 - $450k ($45k/property...not counting inflation) Q8 - 75 years (7.5 years per property)
Option 2 - Buy using cash for 20% down payment & financing the rest. Q1 - $9k Q2 - $3.75k/yr Q3 - 2.4 years (assuming no repairs, not vacancies, no problems) Q4 - 2 years Q5 - 42% Q6 - 5 years Q7 - $90k Q8 - 22 yrs +/-
Option 3 - Buy all cash, then refinancing to get all your cash back out within 6 months. Q1 - $45k Q2 - $48.35k = $45k + $3,35 in CF Q3 - 3 - 6 months...when you refinance Q4 - 3 - 6 Months...when you refi Q5 - 107% (remember, you're getting all your cash back + CF Q6 - 2.5 - 5 years Q7 - $0 When you refi that last property, you get your original cash back. Q8 - Your ahead as soon as you refi.
Real Estate Broker · Louisville, KY · Member since 2014 · 362 posts · 232 votes
11y
Thanks Don! I will look that book up. If I partnered in that fashion and operated as Property Manager, would I need to be licensed or as part owner, I'm guessing Im exempt from that?
Joe, I really appreciate you running the scenarios with the #$'s That does help in seeing my options.
Wholesaler · Camp Lejeune, NC · Member since 2014 · 13 posts · 6 votes
11y
Freaking Genius!!!!! Joe Villeneuve, I am freaking speechless. I never looked at it like that. Thank god for BP. Thank you sir, I am following you from here out!
Even Warren Buffett, who is notoriously anti-debt, uses leverage to some degree in Berkshire Hathaway, which is evidenced by the company's 30% debt to equity ratio.
You don't have to borrow 80% of the value of the property. You can borrow 50%, 30%, 20%. Whatever level of leverage you deem prudent.
What are you going to do with your cash if you don't invest in real estate? If you invest in stocks or mutual funds, you are indirectly taking on debt.
Dave Ramsey is great for people that have little self-control. His all-or-nothing approach to debt is good for book sales but can be counterproductive to financially literate individuals.
Real Estate Broker · Louisville, KY · Member since 2014 · 362 posts · 232 votes
11y
Hi Nate,
I run my own business which is in entertainment, so its boom/bust, so I've always been a conservative investor to offset that. I do have a stock portfolio, and understand what you are getting at. I love that this is getting people out to discuss this method. I've heard 1-2 people refer to Ramsey on the podcast, as an intro to this world, so I was curious how many are actually doing it or something close to it.
It can be DONE! Options and assignments! Learn how to do them and you can grow without leveraging money just your time and skills are needed!
Just remember that TIME is money. Every minute you spend in trying to avoid leverage is a minute you could be earning income or spending with your family.
Someone earlier said that there was no such thing as "good" debt. I disagree. Any debt that helps me achieve my goal of making my family financial secure and helps me to achieve my goal of spending time with my family is good debt. Any debt that detracts from my goal of making my family financially secure and spending time with my family is bad debt.
Dave Ramsey is great for people that have little self-control. His all-or-nothing approach to debt is good for book sales but can be counterproductive to financially literate individuals.
Well put. The "Good Dave" assumes his audience is limited by their income (job). His "Script" isn't for investor/entrepreneurs.
Real Estate Investor · Desoto, TX · Member since 2013 · 560 posts · 528 votes
11y
Use of low interest debt combined with prudent higher earning investment choices is a very good mix in my opinion. It is a time tested formula as well. Having all of your personal money tied up in a debt free property makes your money extremely lazy. At this stage of my investing career I want my money working hard. Like in the gym working out every single day, ha ha ha.
Use of low interest debt combined with prudent higher earning investment choices is a very good mix in my opinion. It is a time tested formula as well. Having all of your personal money tied up in a debt free property money makes your money extremely lazy. At this stage of my investing career I want my money working hard. Like in the gym working out every single day, ha ha ha.
I agree. Especially with this part of your quote, "Having all of your personal money tied up in a debt free property money makes your money extremely lazy." I always refer to equity as "where my money goes to die".