Are there any math impaired RE investors here? :)

Are there any math impaired RE investors here? :)

Denver, CO · Member since 2017 · 102 posts · 48 votes

First of all, I consider myself very smart.  I run a very successful company, have always excelled in everything I do (including school), and have even been pretty successful with RE investing & flipping so far (with my husband) but what holds me back is MATH.   It is super frustrating because I cannot conceptualize or visualize math at all.  I can't think in terms of percentages or ratios, and can't "see" what other people naturally "see" when it comes to numbers.  And I don't mean mathematicians, I mean normal everyday people.  THIS is what holds me back in real estate investing.  I am a creative and massive problem solver.  I see all the opportunities in front of me and all the different scenarios but the math part stops me short.  I literally would be UNSTOPPABLE if I could conceptualize the math of these deals/situations.  

I was listening to a Clubhouse chat with Grant & Elena Cordone and Elena said she doesn't do any of the math because she can't think that way.  She let's Grant handle all of that.  And I was like... OMG THERE'S SOMEONE LIKE ME???!!  So that gives me hope.  I feel like if I had a RE Math coach, who would practice with me every day, I might get better at it but I don't think such a person exists.  I really need to learn one concept really really well so that I actually understand it and then move on to the next.  Just like learning a language or an instrument.  Ho hum.  

I was talking with a lender today and he asked me some questions that I just felt... stupid answering.  I definitely wasn't confident.  Anytime I'm chatting with anyone in RE I just feel dumb.  Just a Friday rant I guess! 

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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
5y

You're not alone. I used to tutor math, and I can tell you that you are not one of the few, you are one of the many. The concepts of math are actually very simple, but math is taught wrong in school...and it has been for years (decades,...maybe centuries). PM me, and I'll give you some tools to help you. REI is nothing but math with dollar signs in front, so it's kind of important. Trust me, I can help you.

See this reply in the discussion

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    5y
    Originally posted by @Marci Stein:

    @Joe Villeneuve maybe you can help us all by posting some math tips here rather than in a PM ? 

    Trust me - would be much appreciated !

     See the list above

  • Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    5y
    Originally posted by @Joe Villeneuve:
    Originally posted by @Jon Q.:
    Originally posted by @Joe Villeneuve:
    Originally posted by @Jon Q.:
    Originally posted by @Joe Villeneuve:
    Originally posted by @Jay Hinrichs:
    Yup.. its just reality that math concepts can be quite tough for many.

    I see it all the time with whole sale deals..  IE  pay 200k  sell for 250k and make 50k with no concept of the expenses that go into it and that that kind of spread equates to maybe 10k profit not 50k 

    More than that. They don't understand the concept of exponential returns, and rely on percentages in their answers to measure their success. Percentages lie when they are the answer in a REI analysis.

    They also accept the answers as givens, instead of the answer being results of the givens...and the variables...and don't realize they can control the variables, because too many live on the right side of the equal sign. The variables, and the control of them, live on the left. If the REI understood the left, instead of taking the quick (lazy), instant gratification the right side gives them, they would see a whole new world of options in REI they never knew were there.

    This is why, when asked what books a REI should read, I always give the same answer: Geometry and Algebra. Geometry teaches how to think through a problem, and multi-task it to build a path (plan in REI) to the future answer. Algebra teaches how to apply that plan.

    Math is nothing but a series of different languages. No different than French, English (OK, I have to count British English and American English as 2 different languages), etc... Just like those languages, one language can talk to another with the use of an interpreter. Math is no different. You need to interpret each math language into English, and back to math to fully understand math...and the REI needs to be able to be that interpreter.

    I blame the way they teach math in school for the struggles found doing this.  They teach/use story problems backwards.  They should use story problems first to teach the math, instead of teach the math, then apply it to story problems.

    Math is in EVERYTHING we do and experience in life.

    Yes... and no.

    Math is a language.  Emotions, the way you feel about a given property, and all qualitative aspects of a given property can be deduced to numbers.  For example, you can convert “architectural beauty” of a set of 5 properties into numbers then rank them based on the difference in income they may generate due to this aspect.

    I would say that MATH is one or the most important language when it comes to REI, because if you do the math wrong or you do not know how to convert qualitative aspects of a given set of properties into math and rank them, it will cost you money.

    For most people maximizing return is the single most important thing.  So if you can’t do math, you’re unlikely to achieve your goal if at all or at least not efficiently.  Math is critical.

    REI fundamentally IS MATH. If you can't do math, all other needed skills (risk management, people management, investment analysis, acquisitions, dispositions, market research etc etc) become useless

    missing on your list... time value of money, discounted cash flows, return calculations (COC, IRR, MIRR, etc).

    EMotions have no place in REI...sorry. It will cause you to rationalize a bad deal.

    I said my list was a partial one of a much longer one, so there were a number of things left out.  I listed what I thought were the most important.

    From you short add ons to my list:

    1 - Time/value of money is based on the above list.
    2 - Discounted cash flows are part of the Analysis
    3 - Return calculations:
    a - COC is important...and on my extended list, but it is only a part of the bigger picture since it is only factored for the first year. I want to know how fast I get ALL of my cash back.
    b - IRR and MIRR I ignore because they are percentage that tell me nothing of value in REI. In the stock market yes, in REI they are a waste of time and a distraction from the real important numbers...with dollar signs.


    I disagree.

    you are an emotional creature. Emotions and intuition DO have a place in REI just like they have a place in the legal profession. Knowing when and how to use emotions as a lawyer is the same as knowing when and how to use emotions in real estate.

    It’s about how you use them.   Using them mindfully with intent.  You need to know what and why you feel them and how to use them when you’re evaluating deals, whether or not to work with particular people etc. Your emotions are informing.  You have them for a reason.

    If your emotions are not considered, you’re operating as part a human being, and not as a full and dynamic investor.  Quantitative should be applied first, qualitative second, including emotions, intuition etc.

    NEVER go through with a deal if your intuition is telling you not to. If you do, you’ll regret it.

    IRR. I'm shocked if you do not use Internal Rate of Return in your efforts to invest in real estate. This is the best way to evaluate return, which includes discounted cash flowed. If return is not important to you, how do you select among several possible deals?

    IRR is used in combination with NPV and CoC. They are used to provide the investor specific information about the nature of each investment, and they provide useful way to compare them. No investor should be in testing in real estate without understanding these performance measurements and how to use them.

     I invest for dollars, not percentages.  The percentages you are saying are important are based on the dollars I say are important.  The difference is, I want to know what to dollars are, because the percentages don't tell me what I need to know.  I want to know actual numbers...not numbers that are a summary of numbers.

    You can have a higher rate of return (pick the rate formula) on Property A than on B, but have a higher actual dollar return on B rather than A.  Which one allows you to exponentially move forward faster and better?

    For instance, if two investors both start with $100k in cash. One invests in the SM and the other invests in RE. The SM investor gets a return of 15% every year for the next 10 years, and invests the dividend portion (say 5%) back into the SM every time it reaches the minimum required cost of that same investment. The REI only gets a 5% return (appreciation and paydown) with the addition of the cash flow (say $10k/yr on every $100k property bought all cash. Less if bought with debt), and invests the CF back into the same investments at the same cash cost when the accumulated cash equals that cash cost....who ends up with the greater CF and total property/Stock values from the start to the end?

    It might be wise to include a calculation of return.  Simply comparing cash flows without considering time value of money / timing of cash flows will be a large hole in your ability to weigh different deals.

    I look at both. Cash flows, timing, IRR, COC, NPV.

    Return is important, and IRR is a measure of cash flows discounted for timing of when those cash flows are received. It is a return OVER TIME and it includes cash flows over a series of years. I calc this usually for a 5 year period.

    Net present value is important. It tells you whether a given investment is worthwhile. 

    Cash on cash return is important, but only gives you a measure of performance for one year, and doesn’t include cash flows over time (ex 5 years).


    Without all of these, your ability to evaluate performance of your investments is limited.

    Return measured in percentage per year IS dollars... obviously.  It’s in a percentage to enable you to compare similar investments.

    I’m not sure what you mean about SM vs RE?

    Are you implying that real estate investors don’t use percentages to measure return??


    Professional real estate investors use rate of return, IRR, yield all the time. The most common way to measure return in real estate IS in fact IRR (see CCIM standards).

  • Member since 2019 · 332 posts · 171 votes
    5y

    @Taylor L. @Carlos Ptriawan

    Syndicators seem to use tricks to manipulate the numbers - so it’s more about RE concepts rather than math.

    I invest only with institutional syndicators, who have been working in commercial real estate for 20+ years and have more than $1B in assets. So I can be sure they are in this business because it’s their core profession, not because it’s their hobby or because they couldn’t become good at anything else. And when I invest in a syndication, I’m basically investing in their track record and performance first and deal second.

    Seeing these tricks often makes me also wonder if this how the RE industry is set up, though I don’t think every RE professional is trying to swindle their client: landlord trying to suck money out of tenants without providing a good service, contractors/handymen sucking up money from flippers without doing a good job (sometimes because they are incompetent rather than unprofessional and lazy), to all the way to professional syndicators manipulating numbers in the deals. Midwest has projects specifically designed for Californians - no one local will take those but I guess ok to sell to Californians as they talk about money in much higher orders of magnitude.

    Luckily I haven’t been fallen to any of these yet, but I have been surprised with one recently. For a ground up development, the syndicator showed that lending was set up with financing terms etc. But after closing, started talking about ‘construction loan’ needs to be finalized. Is this common too - mention during equity raise that lending is in place but start saying ‘construction financing’ needs to be finalized after closing? 

  • Realtor · Lakeland, FL · Member since 2020 · 73 posts · 72 votes
    5y

    @Julie Hill I've never been much of a math person myself but I haven't struggled too much with the concepts needed for REI. My issue has been that I do the calculations once to give myself an answer without writing it down and then need to re-calculate if I want to revisit a deal or compare it to another later on.

    Two things have helped me:

    1. When needing to analyze a deal quickly, I turn to standard rules of thumb (ex. 70% rule for flips, 10% rule for determining B&H value, etc).

    2. I use an app called DealCheck to keep track of all deals I've analyzed. If you haven't used it before, essentially you put in all the data of a deal, it calculates everything for you and keeps record of it in case you want to reference it later. I can do most REI math quite easily but I love that the app can also help you see B&H projections for years down the line with the swipe of a bar. For example, I can see how 10 years down line, my income/expenses have changed and also what I can expect to get back if I decide to sell 10 years down the line taking into account anticipated appreciation, selling costs, etc. Let me know if you try the app out and how you like it. If you have any questions about it, feel free to reach out.

  • Member since 2019 · 7k+ posts · 4k+ votes
    5y

    Tushar yes, you have valid concerns. I suggest you join some Investor Club where investors discuss those operators/sponsors.

  • Denver, CO · Member since 2017 · 102 posts · 48 votes
    5y

    @Account Closed I hope you didn't just compare me to Trump lol.  Anyway thanks for the rec.   And as I keep saying, I can do math, I just can't "visualize" it. 

  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    5y
    Originally posted by @Jon Q.:
    Originally posted by @Joe Villeneuve:
    Originally posted by @Jon Q.:
    Originally posted by @Joe Villeneuve:
    Originally posted by @Jon Q.:
    Originally posted by @Joe Villeneuve:
    Originally posted by @Jay Hinrichs:
    Yup.. its just reality that math concepts can be quite tough for many.

    I see it all the time with whole sale deals..  IE  pay 200k  sell for 250k and make 50k with no concept of the expenses that go into it and that that kind of spread equates to maybe 10k profit not 50k 

    More than that. They don't understand the concept of exponential returns, and rely on percentages in their answers to measure their success. Percentages lie when they are the answer in a REI analysis.

    They also accept the answers as givens, instead of the answer being results of the givens...and the variables...and don't realize they can control the variables, because too many live on the right side of the equal sign. The variables, and the control of them, live on the left. If the REI understood the left, instead of taking the quick (lazy), instant gratification the right side gives them, they would see a whole new world of options in REI they never knew were there.

    This is why, when asked what books a REI should read, I always give the same answer: Geometry and Algebra. Geometry teaches how to think through a problem, and multi-task it to build a path (plan in REI) to the future answer. Algebra teaches how to apply that plan.

    Math is nothing but a series of different languages. No different than French, English (OK, I have to count British English and American English as 2 different languages), etc... Just like those languages, one language can talk to another with the use of an interpreter. Math is no different. You need to interpret each math language into English, and back to math to fully understand math...and the REI needs to be able to be that interpreter.

    I blame the way they teach math in school for the struggles found doing this.  They teach/use story problems backwards.  They should use story problems first to teach the math, instead of teach the math, then apply it to story problems.

    Math is in EVERYTHING we do and experience in life.

    Yes... and no.

    Math is a language.  Emotions, the way you feel about a given property, and all qualitative aspects of a given property can be deduced to numbers.  For example, you can convert “architectural beauty” of a set of 5 properties into numbers then rank them based on the difference in income they may generate due to this aspect.

    I would say that MATH is one or the most important language when it comes to REI, because if you do the math wrong or you do not know how to convert qualitative aspects of a given set of properties into math and rank them, it will cost you money.

    For most people maximizing return is the single most important thing.  So if you can’t do math, you’re unlikely to achieve your goal if at all or at least not efficiently.  Math is critical.

    REI fundamentally IS MATH. If you can't do math, all other needed skills (risk management, people management, investment analysis, acquisitions, dispositions, market research etc etc) become useless

    missing on your list... time value of money, discounted cash flows, return calculations (COC, IRR, MIRR, etc).

    EMotions have no place in REI...sorry. It will cause you to rationalize a bad deal.

    I said my list was a partial one of a much longer one, so there were a number of things left out.  I listed what I thought were the most important.

    From you short add ons to my list:

    1 - Time/value of money is based on the above list.
    2 - Discounted cash flows are part of the Analysis
    3 - Return calculations:
    a - COC is important...and on my extended list, but it is only a part of the bigger picture since it is only factored for the first year. I want to know how fast I get ALL of my cash back.
    b - IRR and MIRR I ignore because they are percentage that tell me nothing of value in REI. In the stock market yes, in REI they are a waste of time and a distraction from the real important numbers...with dollar signs.


    I disagree.

    you are an emotional creature. Emotions and intuition DO have a place in REI just like they have a place in the legal profession. Knowing when and how to use emotions as a lawyer is the same as knowing when and how to use emotions in real estate.

    It’s about how you use them.   Using them mindfully with intent.  You need to know what and why you feel them and how to use them when you’re evaluating deals, whether or not to work with particular people etc. Your emotions are informing.  You have them for a reason.

    If your emotions are not considered, you’re operating as part a human being, and not as a full and dynamic investor.  Quantitative should be applied first, qualitative second, including emotions, intuition etc.

    NEVER go through with a deal if your intuition is telling you not to. If you do, you’ll regret it.

    IRR. I'm shocked if you do not use Internal Rate of Return in your efforts to invest in real estate. This is the best way to evaluate return, which includes discounted cash flowed. If return is not important to you, how do you select among several possible deals?

    IRR is used in combination with NPV and CoC. They are used to provide the investor specific information about the nature of each investment, and they provide useful way to compare them. No investor should be in testing in real estate without understanding these performance measurements and how to use them.

     I invest for dollars, not percentages.  The percentages you are saying are important are based on the dollars I say are important.  The difference is, I want to know what to dollars are, because the percentages don't tell me what I need to know.  I want to know actual numbers...not numbers that are a summary of numbers.

    You can have a higher rate of return (pick the rate formula) on Property A than on B, but have a higher actual dollar return on B rather than A.  Which one allows you to exponentially move forward faster and better?

    For instance, if two investors both start with $100k in cash. One invests in the SM and the other invests in RE. The SM investor gets a return of 15% every year for the next 10 years, and invests the dividend portion (say 5%) back into the SM every time it reaches the minimum required cost of that same investment. The REI only gets a 5% return (appreciation and paydown) with the addition of the cash flow (say $10k/yr on every $100k property bought all cash. Less if bought with debt), and invests the CF back into the same investments at the same cash cost when the accumulated cash equals that cash cost....who ends up with the greater CF and total property/Stock values from the start to the end?

    It might be wise to include a calculation of return.  Simply comparing cash flows without considering time value of money / timing of cash flows will be a large hole in your ability to weigh different deals.

    I look at both. Cash flows, timing, IRR, COC, NPV.

    Return is important, and IRR is a measure of cash flows discounted for timing of when those cash flows are received. It is a return OVER TIME and it includes cash flows over a series of years. I calc this usually for a 5 year period.

    Net present value is important. It tells you whether a given investment is worthwhile. 

    Cash on cash return is important, but only gives you a measure of performance for one year, and doesn’t include cash flows over time (ex 5 years).


    Without all of these, your ability to evaluate performance of your investments is limited.

    Return measured in percentage per year IS dollars... obviously.  It’s in a percentage to enable you to compare similar investments.

    I’m not sure what you mean about SM vs RE?

    Are you implying that real estate investors don’t use percentages to measure return??


    Professional real estate investors use rate of return, IRR, yield all the time. The most common way to measure return in real estate IS in fact IRR (see CCIM standards).

     You're missing my point.  The answers I'm looking for are in dollars, not in percentages.  The percentages do generate a dollar number, but I don't care about the percentage as the answer...I want to know the actual dollar amount that percentage generated, and make my decision from that.  Don't stop at the percentage and make the decision.  Take the next step and tell me what the dollar amount is that percentage generated.

    Yes I do think the TV of money is important, but I don't use a percentage in my answer, I want to actually generate what that dollar amount would be based on the factors I'm using.  If you look at my list, I mention the importance of exponential returns, using instead of spending my seed money, calculating how fast I get ALL of my seed money back, not just how much I get back in the first year (CoCR), using the equity in liquid form at a 5 to 1 value instead of leaving it in the property at a 1 to 1 value, etc...

    Those formulas give answers that stop too soon at a percentage.  They are heading towards the same answers I get to, they just stop before getting there.  All I'm doing is not stopping before I reach the final answer...the dollars that are actually generated.  I don't want the theoretical answer, I want the answer when the same key elements we both are starting with, are actually applied to generate the actual dollars.

  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    5y
    Originally posted by @Jim K.:

    @Julie Hill

    For me, my own math issues go right back to family. You may have noticed that people who make, in one way or another, their living out of something tend to be excessively proud of that thing. They form part of their identity, sometimes a very large part, around it. Your electrician will quote you chapter and verse of the national code because he's so proud of his mastery. Your doctor will speak to you using Greek terms as he's supposedly trying to communicate with you. For engineers and coders (who like to call themselves software engineers), oh, they love da math talk.

    My brother is a coder. He was the kind of person who, growing up, would only play you in games where he was reasonably certain he would win all the time. For instance, I was two years younger than him, and as soon as I could beat him in chess, he stopped wanting to play. As soon as I grew an inch taller than him, any sort of wrestling was off-limits. I'll bet you know types like this, or are sadly related to them, like me.

    In school, my brother was ahead of me, and good at math, and I found that meant that any sort of math achievement on my part would be carefully belittled by him. Did good on a quiz? "That's just stupid kid's stuff." A test? "Maybe next year you'll start doing real math." As my father was a mechanical engineer, my brother's math skills were much ballyhooed in my family. I seemed to have got the message very quickly that my math skills would never be appreciated in my family.

    My brother's BS degree is in, predictably Computer Science/Mathematics. I instead studied English Language and Literature. At the end of my BA, faced with the reality that I had no money and the only way to move ahead in the field was to get a PhD in it, I had to take a test called the Graduate Record Examination, which is a lot like the SAT. There's a math section on it, and I studied for it, and for the first time, really, I made my peace with all the crap I went through in high school math. I became really good at quickly adding things up and calculating percentages in my head when I realized that hocus-pocus talk around those things was one of the main ways people get swindled in society. Once I could relate it closely to something I was interested in (how people are controlled and manipulated by the societies they live in), and not the mean little spite on my brother's face when he saw me doing well in math, it was a lot more interesting for me.

    I ended up scoring well enough on the GRE math section to get a combined score that took me where I wanted to go. I think I took most of the math monkey off my back.

    These days my brother is drowned in debt and working like an animal in the corporate world to pay off his upside-down mortgage on his McMansion and whatever he's still paying on his Tesla, while I am building up my little handyman C-class rental empire slowly and methodically, having realized the market for college literature professors is mighty tight these days and getting worse.

    It's really amazing how much sibling rivalry stops bothering you when you have enough money and a quality vision for the future to laugh off the many stupidities of the past.

    Julie, math guys are just as silly as the rest of us. They think they're super-special mentally, all the horsepower upstairs in the world -- but they're not and it's laughably obvious at times. Math is their thing, that's it. Some of them are more aware, most are not. That's how it goes. They always want you to have the impression that THEY KNOW THINGS, especially in real estate investing. They talk about BIG DATA and abstruse metrics. But very often, they know squat about houses, residential construction in their area, the history of construction, all kinds of things related the fact that it's called REAL estate for a reason. They ignore how intensively local most forms of real estate investing are until it bites them in the butt, and then they lie to themselves and pass off their over-reliance on numbers and metrics instead of people and relationships as just bad luck.

    Math guys will buy a total piece of crap that's guaranteed to lose them money because they have more faith in their spreadsheets than a priest in Christ, they can't even see that the place is falling down. They rely on agents, contractors, inspectors, and lawyers to "do their jobs" when they don't have the foggiest notion of what those jobs entail (nor do they have any real respect for those jobs). Math guys will haughtily inform you that the physical stress they feel at work in their offices and the painful paper cuts they get from handling printouts are JUST THE SAME as a day spent in the trades and the much larger physical risks tradesmen run.

    So Julie, you stick to what you need to learn, you keep working at it until you understand it, and you'll soon be laughing as much as I do at some of the math-based lunacies of real estate investing you'll find here on Bigger Pockets.

     Bad math is bad math, just like bad construction is bad construction.  Two people can use the same methods to build a wall,...one is straight and the other is crooked.  Does the crooked wall mean that those construction methods are wrong?  No.  It means the person that used those methods didn't use them correctly.

    Math is consistent. Two plus two will always be 4. Just because you follow the math, doesn't mean you use the math correctly, or that you used the right math, or that you interpreted the math correctly. What you do with a saw hammer and nails depends on the skill used by that carpenter, just like what you do with the math depends on the skills of that REI.

    Don't blame the math.  It's a tool, just like that hammer.

  • Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    5y

    @Joe Villeneuve

    Who's blaming the math? I'm not even blaming the cult of mathematics and its True Believers. I'm celebrating them, because they make people like me money. My last acquisition is the best possible proof of this. Bought in 2012 by a finance guy who crunched the numbers and thought it was a GREAT investment...and then sold it to me in December 2020.

    Because despite his mad math skills, the dude just didn't understand that you can't remote-manage a C-class duplex in western Pennsylvania successfully for eight years from Georgia, of all places, without quite a few things going wrong. Beyond GOI and NOI, beyond cap rates and IRR, beyond unbreakable contracts and magic spreadsheets, you still have tenants that hate being ignored and refrigerators that break on Christmas Eve, floor drains that get clogged, faucets that break, handymen that sabotage your place because they know they'll never see you, and pesky leaks that just keep on cropping up. Figuring out how to handle all that from seven states away and keep the rent coming in bang on the first every month...not quite something he was equipped for, not quite what was represented to him in hotel ballrooms during seminars about MASSIVE, MASSIVE RETURNS IN LONG-DISTANCE REAL ESTATE INVESTING!!!

    I, on the other hand, live one street over from the duplex.

    Mathematics geniuses afflicted with geographical cretinism...God bless them, every one.

  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    5y
    Originally posted by @Jim K.:

    @Joe Villeneuve

    Who's blaming the math? I'm not even blaming the cult of mathematics and its True Believers. I'm celebrating them, because they make people like me money. My last acquisition is the best possible proof of this. Bought in 2012 by a finance guy who crunched the numbers and thought it was a GREAT investment...and then sold it to me in December 2020.

    Because despite his mad math skills, the dude just didn't understand that you can't remote-manage a C-class duplex in western Pennsylvania successfully for eight years from Georgia, of all places, without quite a few things going wrong.

    I, on the other hand, live one street over.

    Mathematics geniuses afflicted with geographical cretinism...God bless them, every one.

    My bad...sorry. We are actually agreeing then...again, my bad. What you just described, "one street over", is an example of one of the most important aspects of the math when applied to markets...and then individual properties. The bad math is when the REI will analyze based on an "average" over a "geographical area", and assume that all properties in that area are the same. They'll use a group of houses to prove it. The problem is, the actual house in question, is "one street over", and is not the same. I use a a scattered thunderstorm as an example. Have you ever been standing in the rain, and looked across the street and it wasn't raining? Micro markets are made up the same way. Somewhere, one street over, that property won't sell or rent the same way as the properties in the area you are standing in...and using as comps for that property, "one street over".

  • Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes
    5y

    @Joe Villeneuve

    The biggest scam artist who made his money doing those kinds of fudged macro comps and selling properties in a Ponzi scheme to Israeli investors here was this dude named Dov Ratchkauskas, active a few years ago, now in federal prison. If you looked him up, you might find him interesting reading.

  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    5y
    Originally posted by @Jim K.:

    @Joe Villeneuve

    The biggest scam artist who made his money doing those kinds of fudged macro comps and selling properties in a Ponzi scheme to Israeli investors here was this dude named Dov Ratchkauskas, active a few years ago, now in federal prison. If you looked him up, you might find him interesting reading.

    I think I remember that name.  Currently though, this same method of "fudged" or "reationalized" valuation methods are used by both sellers and buyers, depending on whether they need the comps higher or lower, to justify a sale price.  I've also seen them pull out a comp from years ago, or ones that are twice the size, and try to use some sort of factorization/proration applied to these bad apples to justify their price or offer.

    Doing the math is only part of the system/process. You have to use the right input, and understand how to read the output, and the only way to do that is to understand the left side of the equal sign...where the variables are...and not the right side. Too many REI try to take the shortcuts and use math to get there. They want instant gratification, so they use the math as the shortcut, and never truly understand what they have because they have no idea how they got there. In the end, they negotiate against themselves to get the property instead of the deal, since they don't understand how to turn the property into a deal.

  • Member since 2019 · 332 posts · 171 votes
    5y

    @Account Closed I’m sure many RE folks take pride in swindling others: from slumlords in C/D class areas who suck money out of already poor tenants, to turnkey providers in Midwest selling to Californians, to professional syndicators hiding info. Luckily I don’t have to resort to swindling to live a good life. That is why I invest in RE only passively, as being actively involved may require swindling to make positive cash flow. I am happy to just avoid being swindled 😉

    Plus I am investing in real estate only for diversification (only putting 20-25% of my total investments in RE), and I see real estate investment as a capital preservation strategy rather than a capital growth strategy. I don’t believe RE can give better returns than stock market - even the least appreciated stock in the last 10 months has doubled, while 20-30x has been common for stocks that did well. Same story for last 10 years. And the fed’s monetary policy over the last 10 years has been very consistent - difficult to believe that any asset class can beat stock market going forward (for an investor who can handle volatility). But nothing is guaranteed, so I diversify into RE.

  • Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes
    5y
    Originally posted by @Tushar P.:

    @Account Closed I’m sure many RE folks take pride in swindling others: from slumlords in C/D class areas who suck money out of already poor tenants, to turnkey providers in Midwest selling to Californians, to professional syndicators hiding info. Luckily I don’t have to resort to swindling to live a good life. That is why I invest in RE only passively, as being actively involved may require swindling to make positive cash flow. I am happy to just avoid being swindled 😉

    Plus I am investing in real estate only for diversification (only putting 20-25% of my total investments in RE), and I see real estate investment as a capital preservation strategy rather than a capital growth strategy. I don’t believe RE can give better returns than stock market - even the least appreciated stock in the last 10 months has doubled, while 20-30x has been common for stocks that did well. Same story for last 10 years. And the fed’s monetary policy over the last 10 years has been very consistent - difficult to believe that any asset class can beat stock market going forward (for an investor who can handle volatility). But nothing is guaranteed, so I diversify into RE.

    That is likely why you don't invest directly and generate the highest returns in RE, but instead invest in others syndications thereby diluting your returns. I've generated 20-40% annual returns consistently for the past 20 years. This is not that unusual in REI. I bet other experienced investors and, based on his comments likely have also achieved similar returns ALL ethically.

    Know any stock that’s achieved that level of performance? 

    Your swindling comment is ludicrous. Maybe you had a few bad experiences and gave up before investing yourself or maybe you’re just fearful? But if you’ve encountered real estate investors that do that, it’s likely a very small minority... and they end up in court or prison.

  • New to Real Estate · NY · Member since 2021 · 5 posts · 6 votes
    5y

    @Julie Hill Here here! Learning every time

  • Rental Property Investor · Member since 2021 · 30 posts · 11 votes
    5y

    @Joe Villeneuve I would love the help too. I feel the same way. I can do percentage but anything else that people do with number I do with creative ideas @Julie Hill.concentrate on on your strengths not down falls. I used to be embarrassed of not being good in math , today I say it right away , and this way I don’t get stressed out. 😉

  • Los Angeles, CA · Member since 2018 · 86 posts · 86 votes
    5y

    Hi Julie,

    In my opinion the biggest part of the math in real estate comes from accounting. As far as numbers are concerned, most of the "math part" of a deal consists of understanding how to build an income statement and balance sheet from scratch, this exercise is where all the calculations come from that people talk about (noi, irr, CoC, leverage ratio, equity multiple, etc). If you can do this one task you should be able to do just about all of the math involved in any deal and speak intelligently to any lender, the key is you need to actually put in the work for a few hours/days/weeks until you can go top to bottom and bottom to top of a financial statement. If you try it a few times I am sure you will get the hang of it and it will eventually become second nature. If you are uncertain where to start you can get any basic accounting book or take an accounting course on Coursera or at your local Junior College, it will be worth the time and effort just for this purpose. As some have said, a real estate deal can be evaluated on a napkin and that is the truth for the most part, at least where numbers are concerned.

  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    5y
    Originally posted by @Matthew M.:

    Hi Julie,

    In my opinion the biggest part of the math in real estate comes from accounting. As far as numbers are concerned, most of the "math part" of a deal consists of understanding how to build an income statement and balance sheet from scratch, this exercise is where all the calculations come from that people talk about (noi, irr, CoC, leverage ratio, equity multiple, etc). If you can do this one task you should be able to do just about all of the math involved in any deal and speak intelligently to any lender, the key is you need to actually put in the work for a few hours/days/weeks until you can go top to bottom and bottom to top of a financial statement. If you try it a few times I am sure you will get the hang of it and it will eventually become second nature. If you are uncertain where to start you can get any basic accounting book or take an accounting course on Coursera or at your local Junior College, it will be worth the time and effort just for this purpose. As some have said, a real estate deal can be evaluated on a napkin and that is the truth for the most part, at least where numbers are concerned.

    Accounting is very important to be sure, but the biggest, and most important math in REI is analysis.

  • Cleveland, OH · Member since 2021 · 7 posts · 3 votes
    5y

    For me yes, I actually had an IEP in school and math was my weakest area. Because of the IEP, I never thought we could be successful in anything because we had a learning disability or difficulty in certain areas. All I really need is a full complete run down on Real estate and it would be easy.

  • Investor · Palmdale · Member since 2016 · 112 posts · 80 votes
    5y
    Originally posted by @Julie Hill:

    @Tushar P. I didn't say I couldn't DO math...  I have a Masters Degree. Of course I can do math.  It doesn't mean I ever UNDERSTOOD math concepts though.  RE math is mostly simple and I can do it on paper just fine.  But I can't THINK that way. I can't quickly "see" good deals until I sit down with a pen and paper to figure them out.  And I can't visualize ratios.  I read a ton of RE books, and listen to a ton on audible and when they get to the math part, I struggle to "see" it.  I have to reread it and figure it out myself to understand.  I definitely can't do quick surface level analysis in my head.  (I mean the 1% rule sure...)   When I tell you... "Film in S-log 10-bit 422 at 3200 Kelvin" can you visualize it?  I can.  Obviously this is my career and not everyone knows film production but this is also a visual concept.  I can "see" it in my head.  I know what it will look like. My point of posting this was out of frustration because I would love to get into note investing and more complicated things but that might make my head explode.  I also have a couple of partners who will send me deals sometimes... "look at this!" it will be a sheet of numbers and I'm like... "um walk me through this".  It sucks.  Be very lucky this comes easy to you!!   Knowing how to do math and being able to conceptualize math concepts are two different things.

    If you cannot quickly identify good deals, it is because you do not understand your local market and you need to practice more deals. I studied my market, borderline obsessive, because it is FUN to me for approx two months and could know within a few minutes whether it was a good deal. Now it is almost immediate. I can sometimes know if I like the neighborhood just by hearing the address. Just start going through redfin and looking at the map to see where properties are located, do your own rent comps, see how many saves they get and how long different properties sit on the market and notice if you see a trend with the types of properties certain agents list. I drive to different neighborhoods to also get a feel for how easy it would be to rent. You will get so much better by practising more and in particular focusing on a specific area.

  • Member since 2019 · 332 posts · 171 votes
    5y

    @Jon Q. Luckily I haven’t had any bad experiences because it has been less than 2 years since I started looking/investing into real estate, and have only invested in ~20 syndications so far (none have exited yet, some are 10 year hold opportunity zones) - expected equity multiples of 1.5-3x for 3-10 year hold periods. I have looked into investing in rentals, only for using the rental depreciation loss to offset the passive gains from syndications, but I feel it’s not worth it. It is in fact experiences of others shared on biggerpockets which has taught me most of the swindling tactics.

    20% annualized return for 20 years will be ~40x, while many stocks have yielded 20-30x in the last 10 months. Of course, that is not repeatable all the time - it was a lifetime opportunity only for those who have the stomach to handle the volatility. I had one stock yield 35x in 5 years (it was under water for first 3.5 years) - if I had held on to it, it is now at 47x in 8 years.

    I entered the workforce ~10 years ago, so I have only seen bull market. Except 2018, every year has provided 15-25% average return - while some individual stocks have yielded much more. Now I’m diversifying into lower return (but less volatile) real estate. Going forward, concentrated risk in real estate may yield better than the average stock market return, as there is no guarantee for anything.

  • Real Estate Agent · Oklahoma City, OK · Member since 2020 · 471 posts · 462 votes
    5y

    @Julie Hill

    Math is a learned skill like anything else, some have a better inclination toward it but many give up before breakthroughs happen and think they just weren’t born to do math. I tutored every math subject for years up to Calculus 4 and Partial differential equations. I found once something was explained the right way to someone, it was better understood. Perhaps the issue is not the subject but the method of teaching. Luckily for us, we don’t have to know calculus to invest in real estate.

    Forrest Faulconer

  • Rental Property Investor · Member since 2019 · 67 posts · 29 votes
    5y

    @Michael Temple I was feeling okay until I read some of the posts. THANK Goodness you replied. You are the only person who suggested something concrete. We THINK we're doing okay, but now I don't know...we did really basic math: bought for 64k rented out for 1,150. Bought for 72k rented for 1,100. Bought for 105k rented for 1,450. Feel free to run those numbers for me. I didn't do well in algebra or geometry.

  • Member since 2019 · 7k+ posts · 4k+ votes
    5y

    @Tushar P. : the difference between real estate investing and stock investment is we're speculating on the real economy in our specific market. You are not speculating based on future. If you invest in Ohio or in California, your return for the next 5 years is already known, there's no magic. 

    If you invest a high equity growth stock, you're speculating on the future, the sky is the limit, we don't know which share will appreciate more whether it's Tesla or Nio for example.

    The 1.5-2.0 EM in the Real Estate world is very easily to be achieved.

    The real estate investment is very good for common classic investor that understands the risk. 

  • Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    5y

    @Julie Hill,

    I was in IT for 37+ years ... I always taught the machine how to do the math for me. All I needed was the formulas.

    I learned how to use a financial calculator for loans, annuities, etc. and that helped a lot.

    I, too, get a bit befuddled by the concepts. So, I understand where you're coming from ...

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