Van Nuys, CA · Member since 2016 · 89 posts · 23 votes
Once of my favorite entrepreneurs would have to be the one and only Grant Cardone. So naturally I listen to his podcast and follow a lot of his material. One number that he continuously brings up is $100,000 and once you have that kind of money in the bank, its time to start to invest. Which in some aspect I do agree. A 10%on $5000 is just $500 where the same on $100,000 is $10,000, which is much more interesting.
This ideal comes up quite a bit with other motivators and entrepreneurs, to get first things first and make the money before you invest it. This website clearly breaks that mold so the question is, what do you think is the best route? To make all the money and then figure it out or to make some small amounts and work with that? What experiences can you provide with both ends?
Whether one starts with no/low money, or a lot of money, at some point in the business' operation, capital is required. An investor doesn't want to be in a situation where they are living off of credit cards/borrowed money. Cash is king, as they say. Makes thing much less stressful if you can put out fires as they pop up. If you can't (don't have the money readily available), the fires will naturally spread.
@Steven Gesis I am looking for cashflow to replace 5-6k a month from my day job. Let me just try and explain some of my goals and you see what you would do to get there. I currently work a swing shift job at a local steel mill which pays really well for the area that I live in (100k+) My wife is a Realtor and it is her first year so been trying to help her grow that business. Both of our jobs are based on consumers.(Buying steel/houses) Our plan is to buy 1-2 houses a year till we reach 4 and pay 2 of them off and repeat. We only want the cashflow for cushion during the slow times at our jobs. I keep getting off-track on my goals when I see the difference in houses elsewhere were we can buy more for less. Because the rent here just seems so low compared to other markets.
@Joe Splitrock Thanks for the quick reply! So your saying keep stacking my capital towards more flips for higher payouts potential. But at what point do you stop and start becoming the more passive investor letting your money work for you? That is a good suggestion though since my wife is a Realtor maybe we can get early jumps on deals in our local area. Thank you! I just love hearing everyone's input on how they would go about their investing.
@Daniel Cuevas Would it not be better for new investors to learn on smaller deals rather than exposing $100,000 to poor investing due to lack of experience?
This $100,000 thing doesn't make sense to me. It's better to let the bank carry the risk of a note. The bank is the real risk taker in leveraged real estate transactions. To me, this seems like an incredible way for new investors to increase their education and experience while also limiting their exposure.
The $100,000 deal looks even worse when you consider the opportunity cost of smaller investment returns over time. It then looks EVEN WORSE if you apply the concepts of exponential growth models to investments over time.
Therefore, the $100,000 concept is pretty much rubbish.
It's rare that absolute values (like $100k) are recommended as rules to apply in all markets and all situations.
As a 'capital to get started' rule of thumb, I would think having a 10% DP, 5% reserve and no consumer debt like cars or credit cards would be more applicable. If you are driving your net worth, you are not ready.
Needing a $100k may be 5 days of cash-flow for someone like Grant, but that's a high enough number to scare most of us from ever getting started, me included.
Sacrifice and exercise your saving muscle to prevent schemes and scams, shortcuts and bad partnerships. Nothing worthwhile is easy.
Do you recall where Grant Cardone made that reference in his podcasts (or writing)? I ask since you could interpret his statement in many ways. I suppose one way to understand his statement is to say that you should have $100,000 in liquid cash in your bank account before you invest. Or perhaps he meant that you should have a net worth of $100,000 before you invest. Or maybe he meant $100,000 in gross assets notwithstanding the amount of debt you have (which might be relevant for doctors, dentists, lawyers, and other professionals that have larger student loan debts).
Whatever the case is, my personal thought is that you shouldn't have $100,000 just sitting in your personal bank account for an extended period of time (unless you think you need $100,000 as your emergency fund). Now it might make sense to have $100,000 (or more) in cash reserves in your business account, but $100,000 seems to be a lot of cash for an average person to have in their bank account.
You will miss so many opportunities waiting and waiting. I like to reinvest as soon as I have capital if its a really good deal. You never know what the future will hold so do what you can with what you have now.
@Account Closed I am currently in school, but once i can come up with the funds i have thought a lot about house hacking with a similar situation like yours. maybe get a 4 plex and do the whole FHA route, I was just curious of what you had to do to get that. I am extremely new to this so bare with me please. what initial steps had to be taken and what kind of credit score do i need to be aiming for before they take me seriously, currently i think im around 520 :(
@Clay Chandler for me surprisingly SFH houses do better. I cashflow around 1.5k/month after all expenses, piti, etc. for a 5 bedroom house. usually I look for 250-300 of cashflow/person. I don't like counting it by units.
Andrew McIntyre for most loans you need on average about 600 and the minimum for FHA is 580 so get your credit up a little bit. I'm assuming because your in college you are living off credit. I been there before. You definitely should get started asap because the variable in building wealth is time and your losing interest by not doing it earlier.
I don't know how long you plan on doing the 9-5 thing but even after you get your degree you have to pay back the loans + regular living expenses. So getting started as early as possible can create a little cash flow now. And even more once your done.
By the way. I'm surprise there isn't a discussion on here if college is a scam. Or the topic of the education system in the US.
I bought my first investment property after saving up 30K. It was a condo on foreclosure and puts ~$5500 in my savings / year to spend on other properties. If I waited until I had 100k, I would have never bought this deal.
My first live-in flip provided me with 100k+ to kick off my multi-family buy and hold business. In my area, this allowed me to acquire two cash flowing 4plexes. If I waited until I had 100k, I would have never bought the live-in flip deal or the two multi-family properties.
Take small steps. You don't need the 100k to start. Start with something you are comfortable with and re-invest your returns. After a few deals, you will realize the snowball effect of REI and 100K will become easier and easier to acquire.
In Los Angeles market having 100k will get you just started. So I think its wise to have that kind of money before you try to get your feet wet in markets like LA.
Keeping in mind, of course, the LA is the most inflated real estate market in the country. There are countless others throughout the US that are much more affordable and have better margins. While $100k may be just enough to get started in Los Angeles, that same amount of money could potentially leverage half a dozen solid cashflow properties out here in Saint Louis.
I have a lot of respect for Grant, and his advice was quite helpful in putting my own financial house in order, but I'm not sure that I agree with his perspective regarding investment properties. Now, I haven't read all of his work, so I may be totally misunderstanding his point, but based on what I am familiar with it seems that he recommends purchasing investment properties outright with a full cash payment.
It's not necessarily a *bad* strategy, but it totally dismisses one of the most powerful tools in an investors' arsenal: leverage. For $100k, I could buy one property outright, or I could leverage five. Would maximizing the cashflow of a single property really outpace that brought in by five? Generally speaking, I would think not.
As far as actually waiting to invest until you have $100k in liquid cash, assuming that's what he meant? Well, talk about wasted time! At my current income, it'd take me ten years or more of subsistence living to even approach that! In all that time, squirreling away my excess cash in a savings account, I could have instead put that money to work for me!
Having some emergency funds is a great idea (I try to maintain six months of expenses at all times), but $100k seems incredibly excessive for the average family in the average market.
I was able to buy my $6M (100+ unit) apartment complex with only $5,000 of my own cash. Good thing I didn't wait until I have $100,000. You can listen to how I did it in my podcast - http://Biggerpockets.com/show65
That advice (to save $100K before starting to invest) is like what biologists say about bumblebees. "They are not aerodynamic and not supposed to fly." Good thing bumblebees didn't listen to those biologists.
So - NO: you don't have to have $100,000 to start investing. You can start investing right now where you are. Work in finding a good deal and the money will follow.
@Zachary Schneider I agree that LA is highly inflated market, but that doesn't seem to hinder people from buying properties at those inflated rates. Last summer I saw houses (700k - 900k) being gone in matter of days, ofcourse the market slowed down during holidays but the appetite is still there. The key here in LA is SCHOOLS. I would consider myself lucky if I can find a SFH (3b/2bath) below 500k in a good school district. It is what it is.
I agree that I can leverage half a dozen properties out of state, but I don't think we are there yet with full time jobs and young girls. But I appreciate your insight.
@Zachary Schneider I agree that LA is highly inflated market, but that doesn't seem to hinder people from buying properties at those inflated rates. Last summer I saw houses (700k - 900k) being gone in matter of days, ofcourse the market slowed down during holidays but the appetite is still there. The key here in LA is SCHOOLS. I would consider myself lucky if I can find a SFH (3b/2bath) below 500k in a good school district. It is what it is.
I agree that I can leverage half a dozen properties out of state, but I don't think we are there yet with full time jobs and young girls. But I appreciate your insight.
Oh yes, no doubt! 2016 was a great year for real estate nationwide. I saw much the same (albeit at significantly lower price points) in my market. The average listing was only active for 12 days for our busiest season, and same-day contracts were extremely common. As a newby real estate professional, I'll be sad to see the market shift once our momentum ceases. As an aspiring investor, though, I'm still quite excited to see what opportunities a down market might bring.
I'm digressing from the point a bit, though! I certainly wasn't trying to imply that LA was a bad market, I just means that the extremely high expense of the area meant that it wasn't likely to be indicative of the actual costs of doing business faced by the average investor.
I hope things are going very well for you, though!
Id say as long as you have enough cash in the bank to fulfill your marketing goals for about 6 months you should sit on the sidelines and wait. Ultimately most will wholesale or pull hard money to buy, so what worth is holding back? Unless 100k is your marketing goal for 6 months....
@Daniel Cuevas You also have to take into account that there is a heavy degree of survivorship bias when it comes to posts and replies on BiggerPockets. The people that didn't have adequate reserves, bought the "wrong" property, bought at the wrong time, or just plain had unexpected expenses and ended up upside down certainly don't post with the same veracity as those with (earned) success stories. Consequently you'll hear more from people who turned $10K into $100K than you will from people who turned $10K into $0 (or worse).
That being said, the $100K number does seem rather arbitrary. $100K in Manhattan is vastly different than $100K in Kansas. I always looked at it more along the lines of how much I have in the bank after establishing the Suze Orman style emergency fund. Money beyond that could just be sitting in the bank earning nothing. Would I wait for that account balance to hit $100K if I found a great deal? Absolutely not. Would I drain my emergency fund to put myself into a highly leveraged great deal? Absolutely not. Will that prevent from getting the outsized returns of others? Yup. Will that prevent me from getting the outsized losses that don't get broadcasted? Yup.
Disclaimer: I'm in a less than great mood today. But, Grant Cardone is just annoying. and often wrong. This advice, for example. How many successful investors do I know who waited until they had 100k to invest? Zero.
So investing is out for the average Joe. There are so many different strategies that you don't need lots of money. Owner finance deals, subject too deals, assignment of contracts, bird dogging, Jv agreements etc etc. anyone got any more. You've got to start some where.