General Real Estate Investing

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Alicia Marks
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BiggerPockets Book Club Real Estate by the Numbers- Part 2

Alicia Marks
  • BiggerPockets Community Engagement Specialist
  • Fort Worth, TX
ModeratorPosted Nov 18 2022, 18:16

Welcome to a new week of Real Estate By the Numbers Book Club! I know we have a few that will hopefully join us this week as well since their books have arrived. This is where we started diving into the math! There's always two camps: "I've got a spreadsheet for just the occasion", and "Great, now I have to admit that I DID use algebra as an adult!" Either camp is welcome here! 😊

If you haven't added your thoughts to part 1, you can find the thread here: https://www.biggerpockets.com/...

Please feel free to share your own thoughts and questions regarding this section. What did you agree or disagree with? Did you find any "ah-ha" moments that tied to the previous section? If you prefer, you can also use some of the guided suggestions here. 

1. When looking at debt pay down, do you consider whether the interest is simple or daily compounding? If there are two similar amounts, when and how do you decide which to pay down first?

2. What is your own opportunity cost when it comes to being an investor? Did those factors come into play with how you choose to invest?

3. Do you reinvest the profits back into your business? Is there some type of hybrid of reinvestment you put back? What helped you arrive at that decision?

4. Have you considered expected value in your purchases? Do you calculate expected value as you learn a new market? 

5. Were you surprised at the EV scenario given between the two company investments? For those people that tend to be more risk- averse in their deals, did this change anything for you? Do you utilize a decision tree?

6. Have you taken into account TVM (time value of money) to help negotiate a deal or make a decision? Was there anything in the calculation that proved to be wrong in the end?

7. Have you used the discounted income stream approach to assessing when to sell or hold? Is there a different formula you used? 

8. The side by side analysis of current value between properties is something to consider when evaluating properties. Are there other factors that you would additionally consider before making a final decision?

9. With those of you who like to do owner finance deals, do you find that explaining NPV proves difficult?

10. When deciding on a deal, do you have a set let of calculations you run through to pass each stage of approval? Is IRR a calculation you use regularly?

11. We all want to avoid paying, but when does the tax benefit come into consideration?

12. Do you use accelerated depreciation on all or some of your purchases? What is your baseline to deciding if it is worth taking now? If the TVM concept going to play a part in evaluating when to use accelerated depreciation in the future?

There was lots to chew on in this section, so let's get talking.

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Amanda Brickell
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Amanda Brickell
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Replied Nov 19 2022, 08:59

I bought the book a little late. I hope when it arrives I can catch up. either way, love this idea and will look forward to getting involved. 

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Alicia Marks
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Alicia Marks
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ModeratorReplied Nov 21 2022, 12:24
Quote from @Alicia Marks:

Welcome to a new week of Real Estate By the Numbers Book Club! I know we have a few that will hopefully join us this week as well since their books have arrived. This is where we started diving into the math! There's always two camps: "I've got a spreadsheet for just the occasion", and "Great, now I have to admit that I DID use algebra as an adult!" Either camp is welcome here! 😊

If you haven't added your thoughts to part 1, you can find the thread here: https://www.biggerpockets.com/...

Please feel free to share your own thoughts and questions regarding this section. What did you agree or disagree with? Did you find any "ah-ha" moments that tied to the previous section? If you prefer, you can also use some of the guided suggestions here. 

1. When looking at debt pay down, do you consider whether the interest is simple or daily compounding? If there are two similar amounts, when and how do you decide which to pay down first?

2. What is your own opportunity cost when it comes to being an investor? Did those factors come into play with how you choose to invest?

3. Do you reinvest the profits back into your business? Is there some type of hybrid of reinvestment you put back? What helped you arrive at that decision?

4. Have you considered expected value in your purchases? Do you calculate expected value as you learn a new market? 

5. Were you surprised at the EV scenario given between the two company investments? For those people that tend to be more risk- averse in their deals, did this change anything for you? Do you utilize a decision tree?

6. Have you taken into account TVM (time value of money) to help negotiate a deal or make a decision? Was there anything in the calculation that proved to be wrong in the end?

7. Have you used the discounted income stream approach to assessing when to sell or hold? Is there a different formula you used? 

8. The side by side analysis of current value between properties is something to consider when evaluating properties. Are there other factors that you would additionally consider before making a final decision?

9. With those of you who like to do owner finance deals, do you find that explaining NPV proves difficult?

10. When deciding on a deal, do you have a set let of calculations you run through to pass each stage of approval? Is IRR a calculation you use regularly?

11. We all want to avoid paying, but when does the tax benefit come into consideration?

12. Do you use accelerated depreciation on all or some of your purchases? What is your baseline to deciding if it is worth taking now? If the TVM concept going to play a part in evaluating when to use accelerated depreciation in the future?

There was lots to chew on in this section, so let's get talking.


 When considering debt payoff, I frequently look at what will open up the most opportunities for cashflow for myself. This gives me more money to add to my" snowball method" if I choose, or to handle emergencies in the meantime that can be cashflowed.

I am currently dealing with a TVM scenario between a house that is currently listed as a flip and one that is almost finished that we planned to buy and hold. The flip is not selling, with the complaint being that it is too small. The property set for rental is larger and has some interest, but the rates provide little to no cashflow. We have potential buyers interested in that one, even though it was not finished out at a flip level by any stretch. Do we consider that we could still make a small profit after all fees and sell that one, then rent out the smaller one until the market changes? I'm definitely open to ideas, as the flip is just bleeding money at the moment. 

I have not used accelerated depreciation on any of my properties so far. I was told that the price points I'm purchasing in ($250k or less) are not worthwhile for doing a cost segregation. Any thoughts there?

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Jonathan Klemm
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Jonathan Klemm
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Replied Nov 22 2022, 04:29

Love the idea of a book club @Alicia Marks!  Our GC-tech team here in Chicago has a book club.  Currently ready Mindset!

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Rebecca Thacker
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Rebecca Thacker
  • Real Estate Agent
  • Lewisburg, WV
Replied Nov 22 2022, 06:27
Quote from @Alicia Marks:

Welcome to a new week of Real Estate By the Numbers Book Club! I know we have a few that will hopefully join us this week as well since their books have arrived. This is where we started diving into the math! There's always two camps: "I've got a spreadsheet for just the occasion", and "Great, now I have to admit that I DID use algebra as an adult!" Either camp is welcome here! 😊

If you haven't added your thoughts to part 1, you can find the thread here: https://www.biggerpockets.com/...

Please feel free to share your own thoughts and questions regarding this section. What did you agree or disagree with? Did you find any "ah-ha" moments that tied to the previous section? If you prefer, you can also use some of the guided suggestions here. 

1. When looking at debt pay down, do you consider whether the interest is simple or daily compounding? If there are two similar amounts, when and how do you decide which to pay down first?

2. What is your own opportunity cost when it comes to being an investor? Did those factors come into play with how you choose to invest?

3. Do you reinvest the profits back into your business? Is there some type of hybrid of reinvestment you put back? What helped you arrive at that decision?

4. Have you considered expected value in your purchases? Do you calculate expected value as you learn a new market? 

5. Were you surprised at the EV scenario given between the two company investments? For those people that tend to be more risk- averse in their deals, did this change anything for you? Do you utilize a decision tree?

6. Have you taken into account TVM (time value of money) to help negotiate a deal or make a decision? Was there anything in the calculation that proved to be wrong in the end?

7. Have you used the discounted income stream approach to assessing when to sell or hold? Is there a different formula you used? 

8. The side by side analysis of current value between properties is something to consider when evaluating properties. Are there other factors that you would additionally consider before making a final decision?

9. With those of you who like to do owner finance deals, do you find that explaining NPV proves difficult?

10. When deciding on a deal, do you have a set let of calculations you run through to pass each stage of approval? Is IRR a calculation you use regularly?

11. We all want to avoid paying, but when does the tax benefit come into consideration?

12. Do you use accelerated depreciation on all or some of your purchases? What is your baseline to deciding if it is worth taking now? If the TVM concept going to play a part in evaluating when to use accelerated depreciation in the future?

There was lots to chew on in this section, so let's get talking.

I was just telling my husband... I used that high school algebra finally :)! That may be a bit of an exaggeration, but its been a while since I have used a formula outside of excel. 

I am a rookie and I did find the time value of money (TVM) concept nice to be put into math/words. (#6) It took several years to reinvest proceeds from a flip and I knew it was costing me but not how to calculate how much. (#3) I have now reinvested part of the profits and previously paid off school loans with the rest

I am really enjoying the book and I know I will reference these concepts as I look for the best exit strategy for my current acquisition that requires a large remodel. (#11) Additionally, I was able to absorb a lot more information from the Landlord Tax Loopholes RealEstate podcast #689, which was excellent. The book and podcast combined have certainly improved my understanding of when I will see the tax benefits of real estate we hear about. 

Many thanks,

Rebecca

 

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Alicia Marks
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Alicia Marks
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ModeratorReplied Nov 22 2022, 08:20

I definitely agree that it’s given me more metrics to measure a deal by. Figuring out which one I most value will be the challenge, but it does allow me to look from new angles. 

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Alicia Marks
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Alicia Marks
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ModeratorReplied Nov 25 2022, 16:07

Ready for part 3? Check it out HERE: https://www.biggerpockets.com/...

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Bre Reichle
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Bre Reichle
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Replied Nov 26 2022, 14:40

When considering debt pay down, I look at the daily compounding and pay the highest interest rate debt down first. 

I have not taken into account the TVM as of date. However, this has changed my mindset on negotiating a deal. I have heard of this and know the basics behind it, but for some reason it didn't enter my mind until it was brought about in this book to utilize it more. 

I am excited for the increase of knowledge and understanding the numbers. They have made it easy to understand and comprehend. I will definitely be turning this book into a resource book after I am done reading it. 

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Alicia Marks
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Alicia Marks
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ModeratorReplied Nov 28 2022, 11:56
Quote from @Bre Reichle:

When considering debt pay down, I look at the daily compounding and pay the highest interest rate debt down first. 

I have not taken into account the TVM as of date. However, this has changed my mindset on negotiating a deal. I have heard of this and know the basics behind it, but for some reason it didn't enter my mind until it was brought about in this book to utilize it more. 

I am excited for the increase of knowledge and understanding the numbers. They have made it easy to understand and comprehend. I will definitely be turning this book into a resource book after I am done reading it. 


 Definitely not a dust collector, it's a reference tool!

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