What Questions Are Not Being Asked That Should Be?

34 Replies

I'm new to real estate investing. Just closed on my first SFR, and would like to learn more about financing options. Nothing specific at the moment, but planning to refinance in 6 months time and will talk to lenders then about my options. Will also do my research and follow BP in the mean time, and of course, any wisdom would be nice! 😊

Will REI save me from a bad marriage, bad money behaviors, a job I hate, and my child support payments to three baby mommas for the four kids I fathered because my daddy wasn't around to teach me to put a cap on it?

Originally posted by @Jonathan R McLaughlin:

@Joe Splitrock

“What type of buyer is going to buy this from me and why?”

So many posts and questions about the beginning, so few about the exit.

Great question to be asking. You always want to think about the exit strategy and I would argue two different exit strategies:

1. What is my long term goal and exit.

2. What is my shorter term exit strategy if something goes wrong or I need to get out for any variety of life reasons.

Originally posted by @Chris Clothier:

@Joe Splitrock,

I think many investors on BP are passive in some capacity.  They may also actively invest as well, but many have passive investments. Whether an investment includes the word Turnkey or not, I think the biggest question investors fail to consider is "how do the numbers I see on paper actually come to fruition?".  Heck, this probably involves a lot of active investors as well!

When we ask this question, it should lead us to ask a whole lot of other questions about all of the moving parts of an investment.  Such as, "what impact does the scope of my renovation have on my final outcome?".  "Can I charge a higher rent for a more thorough renovation?".  "Will a better renovation attract a longer-term resident and therefore save on my vacancy costs over time?".

I think investors always default to the averages instead of asking why and how.

In my experience, it is the investors and the properties that "save" on renovation and management costs that actually make up the upper half of the average and it is the investors and properties that invest on the front end that actually make up the lower have of the averages.

Knowing how you are actually going to reach the number on the piece of paper you use to run your calculations is much more important that plugging in what makes you feel comfortable.  Knowing how those numbers are achieved to begin with will give an investor a major leg up in this business.

I think some people get a deal analyzer, and either use "default" values or plug in high numbers, figuring it is better to estimate high. Having actually run my business, I have seen how the real world performance measures up. For me, vacancy is near 0%, but that is totally due to how I manage. We place back to back tenants, which can be very difficult and risky. Some properties had better updates over time, better renovations or just better bones. That makes a huge difference on short term CAPEX expense. That being said, CAPEX is happening every day in every property. Even a brand new HVAC system is losing 1/20th of its life every year. Knowing when to sell a property is also important. You may know that major updates are on the horizon in the next five years, so selling now may be better than sinking in all the money. That depends on market. If you put a new roof on for $8000, it doesn't necessarily increase value by $8000.

Originally posted by @Jessie Kristie:

I'm new to real estate investing. Just closed on my first SFR, and would like to learn more about financing options. Nothing specific at the moment, but planning to refinance in 6 months time and will talk to lenders then about my options. Will also do my research and follow BP in the mean time, and of course, any wisdom would be nice! 😊

Refinance is a great area worth discussing under this topic. I think starting out, people assume refinancing and pulling cash out it always the best strategy. There are two thing people don't always consider:
1. Pulling cash out is equity stripping and increases risk. There is two ways this happens. It reduces your cash flow, which leaves less buffer for the property to sustain itself. Leaving less equity can also be a problem if you need to sell earlier than planned, especially if the market takes a turn. You may not plan to sell, but sometimes life has different plans for us.
2. The cost of refinancing is a real expense. You may have to spend $3000 to $5000 to close a loan (maybe more). I have done quite a few refinances and I always calculate the expense, then figure out how many months to break even. Sometimes the mortgage lender will say "it costs you nothing" as they extend your term out several more years. It is not just payment that matters, but length of term and total cost over time. 
Originally posted by @Jim K.:

Will REI save me from a bad marriage, bad money behaviors, a job I hate, and my child support payments to three baby mommas for the four kids I fathered because my daddy wasn't around to teach me to put a cap on it?

There are two false assumptions with real estate investing that some people make:
1. It is not a get rich quick scheme. It is real work and effort.
2. Even if you do get rich, money doesn't solve all the problems you mentioned.

I have thought about many of the same as has been posted. 

For me, I like the philosophy of Robert Kiyosaki, stop thinking poor. The poor try to limit expenses. The rich try to expand their ability to have more cash flow.  

For investors, better income is about finding another income stream. It is not about finding that one way to make $100,000, but finding different ways within the same time amount invested to make $50k+$20K+$10k+$30k = $100,000+, etc.

So many people want to quit their jobs and replace their job income with real estate income because the stress appears to be less. I used to want similar, until I found that my job stress became non-existent after I added real estate income. And then I added another income stream. I could walk away from my day job now, but I don't see the point. So what if I am tied to a job, a trade of time for money. In reality is the same for any business, but each threshold of captivity versus the perks are different, that is the deciding factors. Now, rather than looking for a replacement income stream I just look for better income streams that utilize less time. 

Ironically, most of my hobbies have become an income source in some fashion. I.e. If I learn something new, then I coach others how to do what I did. And now I am very busy AND having the time of my life. Work for me just means that I spending time on an income stream - I have almost zero stress attached to that word. 

The question that people need to ask themselves is, "How do I create a life that I don't need to escape from, or go on vacation from?" Everyone has a different answer, yet the answer is where the happiness is found.

@Joe Splitrock here’s a ‘dumb question’ what is your definition of an ‘operator’? Don’t know why this term has evaded me after lurking for so long. Is it just the active participant in managing a property? A little embarrassed asking but I’ve heard it I think 10 times just today and now I can’t unhear it.