Well, I'm not broke, so a billion in a year should be realistic right?
Seriously though, I'm in a position now where I can buy most houses around here cash. Shopping for something that needs work. So I'm looking for opinions, what should I do, buy property for cash?
I have my reservations about blowing a wad of money on something that is only going to bring in a lousy 1,000 - 1,500 a month. Although rehabbing it and reselling it could get my capital back with hopefully a nice margin for profit.
Really though, is the money there to risk a couple hundred grand? If there isn't enough to pay for my time and risk, I don't want to do it. I've been in business before, and no way I want to compete with people who risk their capital and work hard to come out with a lousy 20 bucks an hour when you add up all their time.
Use leverage, that's the best part about rental properties.
Use someone elses money (bank) to buy a house.
Then use someone elses money (tenant) to pay off your loan.
If you want to buy rentals with cash, you will end up with 6-8% return. And it will come with headaches and work. There are a lot of passive investments that do a lot better with much less work on your part. With leverage though you should be able to push that to over 20% and now its more interesting and worth some work.
So, you have $200k to splash around, but haven't yet? In a years time what will you have? $208k less tax on your 8k interest? Do you think the W. Buffet's of this world use only their own cash to make more cash? All these TV spruikers will tell you the same thing (after getting paid heftily to do so):- leverage other peoples money! They are also right in one other key point:- to be sure of NOT getting rich - take NO action!...
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Let's see. $20/hr. My math says that tenants occupy rentals 24 hours a day, not 8. Perpetual $20/hr is $175,200 per year. And with depreciation allowance, it is very possible that amount is tax deferred with no current tax liability. How lousy is that?
I'm sure the guy on TV can be a millionaire in a year. Regarding your topic "Guy on TV Said I Can be a Millionaire in a Year Even Though I'm Broke". I think the guy on TV was really thinking:
I Can be a Millionaire in a Year Even Though I'm Broke ... by selling hype, hope, and dreams...
First off, I have to ask.
@Brent Coombs What is a "spruiker"? i.e. "All these TV spruikers will...." :-)
Secondly, I also agree that the real value in real estate is in using leverage and investing as buy and hold. The real goal as an investor is to get into a deal at 70% LTV.
So lets say you see a 200k house. As an investor, you would only want to take the deal down if you are able to get it for 140k "all in" (i.e. purchase price plus rehab = 140k).
Example: Purchase is 120k and rehab is 20k and the house will be worth 200k once its complete. You put down 25% (30k) to buy it and another 20k to rehab it. You are now out of pocket 50k which gives you a loan of 70k on a 200k house.
But in a year or two, you refi the house and pull some of your money back out. So maybe now you're into the deal for 20k and you owe 100k on a 200k house.
That looks pretty good - 20k to get 100k in equity. But thats not the real value in investing. As an investor, the other thing you need to do is make sure your deals cash flow. You should be able to make $200 to $300 net per house to start.
So now what does that deal look like:
20k investment for a house that is worth 200k and that you'll owe 100k.
$250 a month net income (i.e. after repairs, vacancies).
$150 a month in principal paydown
$300 to $500 a month in appreciation (figure 2 to 3% which is the historical average)
And here's the best part - because of depreciation $4k a year (120k/27years), all of your rental income is TAX FREE.
One more thing to look at in terms of the big picture and the seeing the true value of buy and hold. In 20 to 25 years, the following will happen:
1) Loan will be paid off.
2) House will be worth double what its worth today (historically, most areas outside of the coasts double every 20 years or so).
3) You rents will go up quite a bit.
So that 20k investment is going to look like this in 20 or 25 years.
Asset (i.e. the house) worth 400k that you own free and clear.
Net income of roughly 1,500 to 2k per month (although this income will no longer be tax free as depreciation will be about out and even whats left won't be enough to offset it all given how much the income actually is).
So, to me, thats the real value in investing in real estate.
I like to look at real estate as the "Now and Later" of investing candy.
You're going to make pretty good money Now from your investment. But you are going to make a ton of money Later.
There's a reason why the one tried and true method of building real wealth is thru real estate.
One other thing I would suggest. managing rentals is not as time consuming as some people would have you believe. It just isn't. I have 32 rentals (all sfh's) and I don't spend anywhere close to the amount of time people suggest on here. I don't do any of the work myself though and maybe thats the disconnect.
If a repair is a needed, the tenant texts me, I text the contractor. I'm done. My turnover has been running extremely low. I've only had 2 move outs in the last 10 months or so. If you price your rentals right and rehab them right, you'll lower your turnover and repair effort and you'll be pleasantly surprised at how easy managing your houses can be.
Lastly, I started with a 43k HELOC. And my investing is what I do on the side. So I can tell you that I am making far more than $20/hr for the time I'm putting into it.
Even if you were to buy 2 or 3 houses though, if you buy them right and run them right (i.e. rent is below market and rehab is done right), you're going to have a really nice chunk of money/equity and rental income in 20 to 25 years that absolutely no other type of investment vehicle out there could come close to touching.
Its simply a matter of seeing the numbers.
First, let's set the record straight. TV people rarely, if ever, have any actual experience with real estate. The reason they're in TV is because the either sell stuff well directly (infomercials) or for advertisers (fix and flips shows with home improvement sponsors).
While both are pernicious and potentislly dangerous, the former has the most impact on people because the broad audience has a high percentage of people who are dissatisfied with their present circumstances and are sold in the idea that real estate with fix that.
On the other side, 95%+ never take any action beyond buying an intro course. This is not rhetoric. It's my observation. Sadly, the number is not much better here on BP or at real estate clubs.
This is what happens. A certain percentage of "us" buy into the dream and, not knowing that the promoters are full of crap, actually go out and make money. Serious money. Life changing money. For me it started with a guy with a newspaper ad and my Godfather demonstrating that buying distressed real estate can be very profitable.
Dream merchants aside, there are really two aspects of real estate:
1) The business of real estate
2) Real estate related investing.
They are not the same.
Most of the puffery on the forums is about wholesaling, which is not investing at all but rather lead generation; people who try to wedge their way between a principal and buyer for a fee. It's an unlicensed activity but legal in many states. This is how most new peopl envision themselves, by making a profit from price spread.
Licensed it not, this is clearly being the real estate business. The test is that it requires you to do something in order to be compensated.
Investing, on the other hand, may include buying real estate, improving,, subdividing, developing, buying mortgages, liens and creditor judgments secured by real estate, but most if these require skills, capital and effort in order to succesfully create added value.
Enders (those on the coasting side of investing) want to monetize via reliable cash flows with minimal hassles. Excitement, drama and problem people are not part of the ender's daily routine so they trade some ROI for passive predictability.
Alas, the TV guys fade (mostly) into obscurity unless totally outrageous, for which there are more than a few. The irony is that, had they acted in their own advise and pursued real estate, they might not have ended up the way they seem to.
hear hear, rick. My mentor is changing my life in distressed assets as well.
I say this all the time on here, and am NOT promoting myself at all - get an expert/mentor to show you how to make money in RE! It is soooo important to increasing your chances to go from reading about real estate to MAKING MONEY in real estate!
@Joe Cummings you can make money, and lots of it, in any aspect of real estate so really it boils down to you and what YOU want to do. Sounds like you have great experience so, what aspect of real estate do you enjoy most and why do you enjoy it? That's where I would start.
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