Do I have unrealistic expectations?

9 Replies

You make your money when you buy, etc.

If I were to buy a 3 br 2 bth single family in a desirable neighborhood, no repairs needed, traditional financing with a 30yr fixed rate mortgage, would i be making a bad investment if I purchased the property through a realtor?

Listening to Brandon's Podcast here makes me think that i need to buy a property that is falling into a sinkhole and covered in black mold and then get my "Justice League" of contractors to fix it up before I can make a profit off of it (using the BRRR strategy).

I desperately want to jump off the high dive into real estate investing but Im deterred because I dont want to buy a property with more cigarette smoke damage than a 1950s casino. Am i being unrealistic? Can i buy something through a realtor and have managed by a professional property manager (assume 10% commission) to make it worth my while?

For discussion lets assume typical Midwest suburbia.

Absolutely you can do what you outlined. The reason to seek out BRRRR deals is to preserve capital for the next project so you aren’t waiting years to scale. I had a similar mindset as you and in trying to think through achieving the scale I wanted I realized the cash for DPs was incredible.

@Alan E. It really depends on your goals. You can get a deal from a realtor and you could get a bad deal from someone on Craigslist. You need to run the numbers and find out if you have a good deal. I personally would want a decent cash flow and not be dependent on any future appreciation that may or may not happen.

If you want to use a PM then add that into your analysis and make sure it works with this extra cost.

I have always been told to add in the cost of PM whether you do it or hire it out. You should be paid for your trouble and you should be able to still cash flow if you decide to use a PM in the future.

Run the numbers don't worry with if it is listed or not. I believe that motivated sellers are not on MLS as much because they don't have time to g o through this longer process.

If you can offer cash and a quick close you should be able to get better deals from motivated sellers or distressed properties.

Your question can't be answered.  The answer you want is found in the specific numbers of a specific property.  Using a realitor, ins't a contributing factor unless the rest of the numbers say otherwise.

What you're asking is the same as asking if I bought a new car with tires, could I get good gas miliage with it?

Today, I only buy rent ready nicer places.  I dont want to spend the time or money fixing things up anymore. I want a tenant in place as soon as I can after I close. A decade ago, I was all about buying value add, but not anymore.  Does that mean making less return, yes....but it gets rid of a lot of headaches.

In most cases, the seller pays all of the realtor fees. Even though this may drive up your end buying price by ~6%, your realtor would cost essentially ~3%. Roll that into a 30 year fixed rate loan, and only put 20% down, then being represented by a professional is pretty small potatoes. Disclosure: I am one.

But the question on being represented by a realtor is completely different from the question you are trying to ask, which is should you buy something turn key or buy something distressed to fix up and gain sweat equity. That all depends on your situation, like mentioned above. You can do either of these with or without a realtor. Most realtors really don't have a clue on the investment numbers to be honest. If you choose to use one, find someone who is an investor themselves and understands that rent minus PITI is not cash flow.

@Alan E. I think it comes down to what your objective is. If your goal is a long term buy and hold, then no, you don't make your money going in unless you can buy a distressed property and force equity through improvements. That's great when you can do it but with a rental property, you make your money through the long term cash flow income stream, the mortgage pay down by your tenants, and hopefully some appreciation. 

A realtor ? , it doesnt matter if there is one or not . It just matters if the numbers work . You can buy a FSBO in great shape that cash flows , you can buy a house thru a realtor in great shape that cash flows . And the exact opposite is true also . Its all about numbers

I think you're looking at it the wrong way. Instead of letting the circumstances tell you if it's a good deal, look at the numbers to see if it's a good deal. You can absolutely buy a rent-ready nice property and make money (that's all I've ever bought), but you need to just look at the numbers. If a property isn't scheduled to cash flow, is it anticipated to appreciate? How do you know?

These are the types of questions/answers that will get you somewhere. Circumstantial scenarios won't. 

Learn how to run numbers 

(here's help-

and learn what makes a property a good investment in addition to the numbers. Location, sustainability of the numbers, exit strategy....

But in short, yes you can buy a nice property through a realtor and use a property manager and make money. If you find the right property in the right location.

Yes, you can still make money. When you look at the BRRRR strategy, it's set up to make investing more affordable and force a better return up front. That doesn't mean that a turn-key property is a bad investment; it just means the BRRRR is a better investment.

Keep in mind, "better" is subjective. Buying a BRRRR generally involves more time, energy, and risk. My father only bought homes that were 100% turn-key and he paid all cash for them. I tried convincing him he would get a better return by splitting his money and buying two houses with 50% down instead of one house with 100% down. Long story short, he passed away last year and his wife is relying on the monthly income so it's actually good that they didn't have mortgages on those properties.

It all comes down to your personal goals and comfort level. 

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