Buying first Property. having 2nd thoughts... educated myself

Brian Sullivan · 2019-06-05T07:44:51-07:00

Hello BP community,Ok, I posted on here 4 months ago asking about my first rental property I was looking at purchasing. I'm back on here to admit that I went into real estate investing with no education about real estate investing and no plan on how where I was going or how to get there. I'm now under contract to purchase said property and I'm having second thoughts. I'm having second thoughts because before I was running on hopium and now I've started to educate myself on real estate investing. I've done this through the bigger pockets podcasts and through a couple of books I've read since then. Before I ask my question here are the details. The property wouldn't start to make COCROI until year 5 (1.18%) and year 10 (5.07%) start to make some better cash. The cost to purchase the property (it's a brand new build) is 289,000 w/ 15% down and it's located in Florida close to the beach. My thoughts, before my light and continuing education, were if someone paid the mortgage and insurance I was using the property as a retirement fund that I would sell in 30yrs. I didn't put into account all the CapEx that would later come down the road. Now with both our incomes we wouldn't be stretched thin between the house we live in and this one but it does take away from money we could invest in future properties. Now if we left this deal we'd be leaving 11k on the table but we wouldn't have this property holding us back from future buys. If we bought it we'd have equity in the property and would be able to use that in the future.My question is should I go through with this purchase or pop smoke and bail? I've been writing and formulating our goals (my fiance and mine) for real estate investing and this doesn't allow for us to maximize our 1 property a year at least every year. We'd have to worry about the possibility of dumping money into this possible purchase. I've come to this forum hoping that I could make sense of my choices from the BP community. Ultimately the choice is mine, but I'd hate to not use guidance from the best real estate forum out there. I know there are probably other details that might be needed and I'll produce those to help paint the investment picture for you. Thank you all in advance.Respectfully,Sully

Tanner Marsey

Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes

7y

@Joe Villeneuve

I agree with most of what you say but in regards to this type of situation I guess we’re going to have to disagree. Why do negative signs not belong in RE, in the short term, if they’ll one day turn positive? Large companies take on debt and negative profits to get up and running often. “Ya gotta spend money to make money” There are millions of examples of people that purchased what would be considered a “bad deal” per your criteria that come out way ahead. Between rising rent, mortgage pay down, tax benefits and possible appreciation this will be win long term. And I know you can say that appreciation is speculative..... just like talking about opportunity costs..... speculative. Who knows where else this money would go and what kind of results that will yield.

Brand new build on the coast of Florida which is seeing a boom right now. Coastal RE. No foreseeable major maintenance. A solid W2 income owner who isn’t relying on cash flow and, from the sounds of it, can cover expenses if necessary. Hold on to this. You can come thank all of us that told you to do so in 30 years.

1 Reply

Gina Smith

Rental Property Investor · Member since 2018 · 24 posts · 8 votes

7y

Depending on how you came to your "loss" number (I couldn't see the attachment) it may be worth it to stay with it. I have a rental in Chicago that doesn't cash flow (was a prior residence I didn't buy it as such) but I keep it because I put in about $100/month roughly and my mortgage is being paid down essentially by someone else, I know it will appreciate and if my income were lower I could take the loss against my W-2 income. Eventually I'll be able to take that loss plus that's what got me in the game! Not saying you should do a bad deal just to do a deal but as someone said that small loss might not end up so in the end. You may also be able to eventually refinance to get the cash out to do other deals. I don't know your market but I have seen many people make nice appreciation when they have bought pre-construction (not sure if that's your case). Also, you might be surprised who will AirBNB it to be in the sun and near a beach,.

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Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

7y

Originally posted by @Tanner Marsey:

@Joe Villeneuve

I agree with most of what you say but in regards to this type of situation I guess we’re going to have to disagree. Why do negative signs not belong in RE, in the short term, if they’ll one day turn positive? Large companies take on debt and negative profits to get up and running often. “Ya gotta spend money to make money” There are millions of examples of people that purchased what would be considered a “bad deal” per your criteria that come out way ahead. Between rising rent, mortgage pay down, tax benefits and possible appreciation this will be win long term. And I know you can say that appreciation is speculative..... just like talking about opportunity costs..... speculative. Who knows where else this money would go and what kind of results that will yield.

Brand new build on the coast of Florida which is seeing a boom right now. Coastal RE. No foreseeable major maintenance. A solid W2 income owner who isn’t relying on cash flow and, from the sounds of it, can cover expenses if necessary. Hold on to this. You can come thank all of us that told you to do so in 30 years.

"... rising rent, mortgage pay down, tax benefits and possible appreciation this will be win long term. And I know you can say that appreciation is speculative..... just like talking about opportunity costs..... speculative".

All of this can be said about all deals, including the actual deal that starts out making money instead of losing it. Now, would you rather start out ahead, or behind...and have to play catch up before you can move forward?

Nobody knows for sure what the future will bring...that's a big part of why I say what I say. If things go up, the deals that started ahead, are further ahead. If things go south, the deals that started behind, go further behind...and the deals that started ahead, have a cushion the deals that started behind don't have.

Relying on the future to fix what's wrong, is all risk. Starting out with a cushion to protect your future is a form of risk control.

1 Reply

Tanner Marsey

Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes

7y

Originally posted by @Joe Villeneuve:

Originally posted by @Tanner Marsey:

@Joe Villeneuve

I agree with most of what you say but in regards to this type of situation I guess we’re going to have to disagree. Why do negative signs not belong in RE, in the short term, if they’ll one day turn positive? Large companies take on debt and negative profits to get up and running often. “Ya gotta spend money to make money” There are millions of examples of people that purchased what would be considered a “bad deal” per your criteria that come out way ahead. Between rising rent, mortgage pay down, tax benefits and possible appreciation this will be win long term. And I know you can say that appreciation is speculative..... just like talking about opportunity costs..... speculative. Who knows where else this money would go and what kind of results that will yield.

Brand new build on the coast of Florida which is seeing a boom right now. Coastal RE. No foreseeable major maintenance. A solid W2 income owner who isn’t relying on cash flow and, from the sounds of it, can cover expenses if necessary. Hold on to this. You can come thank all of us that told you to do so in 30 years.

"... rising rent, mortgage pay down, tax benefits and possible appreciation this will be win long term. And I know you can say that appreciation is speculative..... just like talking about opportunity costs..... speculative".

All of this can be said about all deals, including the actual deal that starts out making money instead of losing it. Now, would you rather start out ahead, or behind...and have to play catch up before you can move forward?

Nobody knows for sure what the future will bring...that's a big part of why I say what I say. If things go up, the deals that started ahead, are further ahead. If things go south, the deals that started behind, go further behind...and the deals that started ahead, have a cushion the deals that started behind don't have.

Relying on the future to fix what's wrong, is all risk. Starting out with a cushion to protect your future is a form of risk control.

“Scared money don’t make money.”

All I’m saying is that just because it’s not 200 bucks a month cash flow in the mid west, rust belt or the south doesn’t make it wrong or bad.

A million ways to skin a cat.

0 Reply

Frank Klarich

Flower Mound, TX · Member since 2016 · 30 posts · 24 votes

7y

Originally posted by @Joe Villeneuve:

Originally posted by @Brian Sullivan:

@Joe Villeneuve

This statement puts you miles ahead of many investors. The problem is, in 30 years, can you be sure what the property will be worth?

No, you can't be positive on what anything is going to be worth in the future. Through answering this I see your point or at least one I came to. Waiting for 30 yrs for a solid profit when other properties could have got me there sooner without having to wait for just appreciation.

How did you arrive at this number?

It's the amount that we'd lose from escrow, granite we upgraded to and the cabinets. Actually, now that I think about this more and reexamine the numbers, They did include an allotment budget. which would put the loss at just under 9k.

Where's the equity?

Wouldn't there be equity from our down payment and then the monthly payments towards the principle and interest?

How did you come up with "1 property a year" scenario?...and why?

That's the goal I set out for us to make as a baseline. My mission statement, 5 year and 10 year goals for us has yet to be finalized. I wanted to have ten properties by year ten. I think we can do better but want to keep this manageable too.

Bad, very bad, path to take. What you may not realize, is the visible paper losses you see, are hiding (in plain sight), compounding losses from many things...such as lost opportunities.

I know. I'm just disappointed in myself for getting this far. I have to let some people down for pulling out of this deal which is supposed to close next week. It doesn't match up with what I want to be able for us to cash flow and how I'd like us to grow.

Do you have any advice on how to word that email to all parties involved? Thank you for taking the time to help me realize things from someone else's point of view.

Don't mistake equity you pay for, as equity you gain. Equity you pay for is just your money transferred from your bank to the property...where it dies.

"Buying 1 property..etc...." isn't a plan. At best, it can be described as part of the execution of a small part of the plan.

Your mission statement is the same as above...just an extended version of it.

A plan, is based on specific financial goals (accomplishments). The development of the plan, is a series of specific events, one leading to and through the next, eventually leading to (and accomplishing) the Specific Financial Goals. Keep in mind that each step along the way, has a different set of criteria needed to accomplish the specific mini-accomplishments at that time (or timeline) in your plan. This means, at each step along the way, you would/should be focused on a different series of events, in order to reach the accomplishments at the timeline you are at in your plan.

Now, to design this plan, you reverse engineer it. Start at the end (your specific financial goals), and work you way backwards through the prerequisites (much like going through college) until you arrive at where you are at now. Then turn around, and follow the breadcrumbs back to where you started...at the end.

It appears as though you already have the mindset for this...you just don't realize this...yet.

Joe, this is solid, solid advice. I may print this out and pin it to my wall. A LOT of WISDOM in what you are stating/advocating. Thank you for speaking truth and not sugar-coating.

1 Reply

Joe VilleneuvePro Member

Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes

7y

Originally posted by @Tanner Marsey:

Originally posted by @Joe Villeneuve:

Originally posted by @Tanner Marsey:

@Joe Villeneuve

I agree with most of what you say but in regards to this type of situation I guess we’re going to have to disagree. Why do negative signs not belong in RE, in the short term, if they’ll one day turn positive? Large companies take on debt and negative profits to get up and running often. “Ya gotta spend money to make money” There are millions of examples of people that purchased what would be considered a “bad deal” per your criteria that come out way ahead. Between rising rent, mortgage pay down, tax benefits and possible appreciation this will be win long term. And I know you can say that appreciation is speculative..... just like talking about opportunity costs..... speculative. Who knows where else this money would go and what kind of results that will yield.

Brand new build on the coast of Florida which is seeing a boom right now. Coastal RE. No foreseeable major maintenance. A solid W2 income owner who isn’t relying on cash flow and, from the sounds of it, can cover expenses if necessary. Hold on to this. You can come thank all of us that told you to do so in 30 years.

"... rising rent, mortgage pay down, tax benefits and possible appreciation this will be win long term. And I know you can say that appreciation is speculative..... just like talking about opportunity costs..... speculative".

All of this can be said about all deals, including the actual deal that starts out making money instead of losing it. Now, would you rather start out ahead, or behind...and have to play catch up before you can move forward?

Nobody knows for sure what the future will bring...that's a big part of why I say what I say. If things go up, the deals that started ahead, are further ahead. If things go south, the deals that started behind, go further behind...and the deals that started ahead, have a cushion the deals that started behind don't have.

Relying on the future to fix what's wrong, is all risk. Starting out with a cushion to protect your future is a form of risk control.

“Scared money don’t make money.”

All I’m saying is that just because it’s not 200 bucks a month cash flow in the mid west, rust belt or the south doesn’t make it wrong or bad.

A million ways to skin a cat.

You made my day with the "scared money..." comment. Thanks.

It brought back my childhood, when friends used to dare, and double dare you to do something you shouldn't be doing...and then called you a "scaredy cat" when you wouldn't.

What's the most important thing to remember if you want to win at Poker? It's the same thing if you want to win in RE.

0 Reply

Tanner Marsey

Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes

7y

Originally posted by @Joe Villeneuve:

Originally posted by @Tanner Marsey:

Originally posted by @Joe Villeneuve:

Originally posted by @Tanner Marsey:

@Joe Villeneuve

I agree with most of what you say but in regards to this type of situation I guess we’re going to have to disagree. Why do negative signs not belong in RE, in the short term, if they’ll one day turn positive? Large companies take on debt and negative profits to get up and running often. “Ya gotta spend money to make money” There are millions of examples of people that purchased what would be considered a “bad deal” per your criteria that come out way ahead. Between rising rent, mortgage pay down, tax benefits and possible appreciation this will be win long term. And I know you can say that appreciation is speculative..... just like talking about opportunity costs..... speculative. Who knows where else this money would go and what kind of results that will yield.

Brand new build on the coast of Florida which is seeing a boom right now. Coastal RE. No foreseeable major maintenance. A solid W2 income owner who isn’t relying on cash flow and, from the sounds of it, can cover expenses if necessary. Hold on to this. You can come thank all of us that told you to do so in 30 years.

"... rising rent, mortgage pay down, tax benefits and possible appreciation this will be win long term. And I know you can say that appreciation is speculative..... just like talking about opportunity costs..... speculative".

All of this can be said about all deals, including the actual deal that starts out making money instead of losing it. Now, would you rather start out ahead, or behind...and have to play catch up before you can move forward?

Nobody knows for sure what the future will bring...that's a big part of why I say what I say. If things go up, the deals that started ahead, are further ahead. If things go south, the deals that started behind, go further behind...and the deals that started ahead, have a cushion the deals that started behind don't have.

Relying on the future to fix what's wrong, is all risk. Starting out with a cushion to protect your future is a form of risk control.

“Scared money don’t make money.”

All I’m saying is that just because it’s not 200 bucks a month cash flow in the mid west, rust belt or the south doesn’t make it wrong or bad.

A million ways to skin a cat.

You made my day with the "scared money..." comment. Thanks.

It brought back my childhood, when friends used to dare, and double dare you to do something you shouldn't be doing...and then called you a "scaredy cat" when you wouldn't.

What's the most important thing to remember if you want to win at Poker? It's the same thing if you want to win in RE.

A thousand ways to skin a cat!

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Buying first Property. having 2nd thoughts... educated myself

Buying first Property. having 2nd thoughts... educated myself

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