What do you wish people had told you when you started?

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What do you wish people had told you when you started?

Richard Chan
Title Representative · Arvada, CO · Member since 2016 · 2 posts · 1 vote

Greetings and Salutations BP folks!

I found BP via Youtube starting with Peter Harris's videos and following suggestions.  Can't begin to say how impressed and motivated I am to have found this community.  Thank you!!

I intend to invest in multi family dwellings, starting with at least a 4 plex is my plan.  I have chosen this niche for many reasons I won't go into here.  This is my focus, and I intend to buy and hold, hopefully house-hacking the first one.

I have been working on analyzing properties using the knowledge gained from BP, and am happy to say it's not as hard as I made it out to be prior to starting.  

I live in Denver, and work at an established Title Company, so please use me as a reference for Title questions.  I very much welcome opportunities to network with anyone, f2f, phone, e-mails, etc.

Something I thought may help me is to ask all of you - What do you wish someone had told you before you started investing? This can be very general, like "I wish someone had told me that the work is 90% persistence." Or it could be something very specific such as "I wish I knew about 203K FHA loans that can do 3.5% down, and all I had to do was live in the property for 2 years".

Thank you in advance!  I look forward to the future of our dreams.

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Mark Holencik
Investor · Coplay, PA · Member since 2015 · 404 posts · 315 votes
10y

My mentor told me this when I bought my first property. He said there is only one rule you need to know about being a landord "if they can not pay one months rent they can not pay two". Everything else you can adapt and change as you go.

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  • Robert Herrera
    Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
    10y
    Richard Chan FHA is only 1 year occupancy. I wish u would have known how much fun the whole process is. You can really jump into many different aspects as an investor. I think the real question is, how did you make it happen... Because that is the key. That answer requires years if trust and making money for others.
    0Reply
  • Bill S.Pro Member
    Moderator
    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    10y

    They did tell me, I just didn't listen or comprehend the wisdom. Probably the greatest mistake was aiming too low. Set lofty goals.

    4Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y
    I just wish I would have found BP quicker. I made some high dollar mistakes. I also wish I would have gotten through my thick head that you don't want to own the property, and the idea that the more equity you have the less your return is. yet at the same time it's your safety net if the market falls. You can refi for a lower payment easier if you have a boatload of equity. It's a fine line between keeping equity down and staying safe in a fluctuating market. Still havnt found a real comfort zone there. RR
    1Reply
  • Patricia Miller
    Durango, CO · Member since 2016 · 92 posts · 12 votes
    10y

    @Ralph R. Pardon me for digressing from the original post, but, being a newbie, I would like clarification. I understand the value of leveraging as much as possible. However, I am not clear about the idea of "the more equity you have, the less your return is." I know that when you do the formulas for a new purchase, this is true. But, how does this concept apply to buy and long-term hold? Obviously, the more money you put into and hold in a property,  the less $$ you potentially have to play with in terms of getting another property (assuming you don't have very deep pockets). Also, of course, there is value in having your tenant pay your mortgage and provide you cash flow. That said, if you make an oversized downpayment from the get-go, what is meant by "return" if you do not sell the property? I'm not suggesting I would want to do that, I'm just still trying to nail down these concepts... 

    Thanks for any assistance.

    0Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    @Patricia Miller  when you buy a house and rent it several factors come into play.  You gave a down payment. Say the house is 100k and you put 20k. down. It's rented  on the first day, and it cash flows $100 dollars a month.  First off the cash flow is not profit. The tenant is returning your down payment at a rate of $100 dollars a month. At this rate it will take 200 months to get your down payment back. That's over 16 years to get your money back.  Assuming after 16 years you could get every penny of your money back when you sell that would mean you gained .005% interest on your money.  Buy the same house with a $10k down payment. Now it's only 100 months or 8 years to get your money back. You have doubled your return on your money to 1% by cutting your investment in 1/2.  Now at the same time the renter is paying all  the house expenses as well as the interest on the loan   There is no way to get these back. However he is also paying down the principal on the loan. This amount starts small but increases a little every month.  There's 2 common ways to get this money. Sell or refinance. It's not earning you money. You cannot spend it. You cannot do anything with it. It's locked up in the house. Actually it's wood and doors and toilets. Its the house itself. It's not working for you. It's just there.    I call this purchased equity. If you refi and take only this purchased equity and the interest is the same than the payment will remain the same. BUT it cost you money to refi. So in essence it cost you money to get equity out of the house. If you take appreciation out with this loan and values fall then you are upside down in the house.   This is why they say you make your money when you buy the house. RR

    2Reply
  • Derrick W.
    Investor · Bryan, TX · Member since 2016 · 165 posts · 82 votes
    10y

    They did tell me, I just didn't listen or comprehend the wisdom. Probably the greatest mistake was aiming too low. Set lofty goals.

    ^^^^This right here^^^^^^

    0Reply
  • Mike Bargetto
    Insurance Agent · Phoenix, AZ · Member since 2014 · 148 posts · 66 votes
    10y
    Patricia Miller great question. If it only takes you $100 to make +$20 then you're doing better than the guy (or gal) who made +$20 but needed $120 to get it. Also, If you pay off your mortgage early and truly own your house the ability to leverage decreases and you forfeit the ability to invest that money in other vehicles that would ideally bring in better returns than the money saved through paying down your home.
    1Reply
  • Patricia Miller
    Durango, CO · Member since 2016 · 92 posts · 12 votes
    10y

    @Ralph R. If you are not in education - you should be! I truly appreciate your very clear response... (screen shot saved and to be read over and over until this sinks into my head). Great backup from @Mike Bargetto - at Bigger Pockets we are in good hands!

    So back to the original post @Richard Chan - being a newbie I'm not looking back yet, but as @Bill S. suggests - all that information is there for the asking (especially on BP) - it seems wise to soak it in as best as possible before making a big move with big regrets. Best wishes!

    1Reply
  • Mark Holencik
    Investor · Coplay, PA · Member since 2015 · 404 posts · 315 votes
    10y

    My mentor told me this when I bought my first property. He said there is only one rule you need to know about being a landord "if they can not pay one months rent they can not pay two". Everything else you can adapt and change as you go.

    5Reply
  • Tommy F.
    Investor · Charlotte, NC · Member since 2015 · 183 posts · 146 votes
    10y
    Richard Chan , Everything in Rich Dad Poor Dad, period. If I had read that book when it first came out I suspect I would likely be in a different stage of investing today. Think twice about 529 college plans and compare it a rental property. Leverage OPM. Leverage other people's knowledge: BP is a free warehouse of information that a person today can use to catapult themselves ahead much faster. Fifteen to twenty years ago, a person would have to purchase and read books (no podcasts), imagine that, to get what is now at your fingertips on a smartphone.
    3Reply
  • Mark Kelley
    Investor · Raleigh, NC · Member since 2016 · 82 posts · 34 votes
    10y

    Hey @Tommy F.. Could you elaborate on your 529 comment? I'm putting money away each month for our little ones, and I judged the 529 to be a good vehicle to earn market returns without tax on reinvested dividends or capital gains taxes on earnings at withdrawal. I think NC stopped their state tax deduction, which is too bad. It still seems like a good deal. Am I missing something key? What's the strategy with using investment property to pay for college with a rental? Sell it four for years of tuition and expenses?

    0Reply
  • Mark Kelley
    Investor · Raleigh, NC · Member since 2016 · 82 posts · 34 votes
    10y

    To @Richard Chan's original question, I have made and atill make many mistakes. Here's one specific mistake i wish someone helped me avoid. I used to think that having tenants sign longer leases (2+ years) were better than shorter ones (1 year or m2m) to minimize turnover and vacancy, but that's not necessarily the case. I got wed to a couple pesky tenant in long leases. Not only was it annoying with trivial tenant requests and constantly resetting expectations, but it limited my options.

    Also, this points to mistakes I made around poor tenant screening and rushing to get a tenant placed. Like I said, a lot of mistakes.

    0Reply
  • Joseph Caracappa
    Investor · Santa Rosa, CA · Member since 2012 · 127 posts · 90 votes
    10y
    Richard Chan I wish when I started that I would have truly grasped the idea/fact that real estate is a business that is built over the long haul! That I was no one different, I had to go to battle and earn my strips! Not to waste valuable precious time looking for the fast path. Just get to work, put in the hours and have an incredible amount of patience! I know what an amazing concept, you actually have to work your butt off and stay focused for years, to build wealth :)
    0Reply
  • Tommy F.
    Investor · Charlotte, NC · Member since 2015 · 183 posts · 146 votes
    10y

    @Mark Kelley, Richard's question was about hindsight in general.  Your question is to elaborate on the comparison of real estate to 529 Plans. So, with that in mind please consider everyone has a different situation.

    With a 529 Savings Plan the operative word is "savings". "You" put your taxed earnings into a plan that will allow withdrawals to be free of federal tax and in some cases state tax when the money is taken out to pay for qualified college expenses. Yes, there are of benefits to the 529, much like there are benefits to IRAs and 401ks, but I trust you're finding here on BP that wealth can be, and is, amassed more quickly when you take control of things.

    With a 529, there's no guarantee your money will grow, and you could actually lose money. You can get the timing wrong. Investment time horizon isn’t the only area where you need to pay attention to the calendar. If you have more than three to five years to go before you need to start writing tuition checks, consider stock market exposure. Your child may receive a full scholarship or decide not to go to college for a number of reasons.

    There's no guarantee your money will grow with real estate, but the odds are more in your favor especially if you know what you're doing and/or have a good team helping you. Instead of, or in conjunction with, other savings vehicles, consider just ONE rental property and all the benefits of the right property will offer over time: Cash Flow, Amortized Equity, Passive Activity Losses that "may" lower your W2 tax bill if you have less than $125k earnings, benefits of inflation in that not only are tenants paying down mortgage debt and rents increase over time, the debt itself becomes devalued, costing less in actual dollar terms. Surely, these are benefits you and other readers already know, and the icing on the cake, of course, is market appreciation. Even a mere 2% market appreciation is a very conservation possibility. All the benefits of real estate investing can substitute a 529 Plan. When it's time for kids to go to college, you may have an asset possibly owned free and clear, or you may have 18 years of equity built that you can cash-out refi (tax-free) and keep the cycle going.

    It's all individual choice and comfort level. What works for some, may not work for others. All the best!

    1Reply
  • Rick BassettBusiness Member
    Property Manager · Greater New Haven, CT · Member since 2010 · 377 posts · 434 votes
    10y
    I wish I was told to start younger, like in my mid 20's, rather than figuring it out at nearly 50 years old. While the current portfolio is very good, it would've been amazing if I started my earlier.
    475-900-3100
    Bassett Property Management5108 Reviews
    WebsiteView Page
    3Reply
  • Mark Kelley
    Investor · Raleigh, NC · Member since 2016 · 82 posts · 34 votes
    10y

    @Tommy F. thanks for the detailed explanation and good points. I see the benefits of both, so I do both. I figure doing both will give me options in 15 & 17 years when the kids head to college, depending on the state of the real estate market, stock market, interest rates. tax rates and a host of other considerations. 

    0Reply
  • Richard Chan
    OP
    Title Representative · Arvada, CO · Member since 2016 · 2 posts · 1 vote
    10y

    Thank you all for the responses!  I fully intend on learning as much as I can, but trying not to get stuck in the state of 'I still don't know everything'.  I know that I never will.  I am getting more and more comfortable daily working on numbers and putting pieces together.  I will know when it's right to pull the trigger and start deals, but I would rather wait longer to be comfortable, than make a huge mistake that screws up years of my investing future. The only thing more important that spending time on this is spending it with my little girls.  Best of luck to everyone!

    0Reply
  • Logan Chierotti
    Investor · Boulder, CO · Member since 2016 · 19 posts · 23 votes
    10y
    Buy, hold and never sell. The biggest mistakes I've made in real estate comes from selling homes that are now double or triple the value.
    3Reply
  • Robert Herrera
    Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
    10y
    Ralph R. All that cashflow IS profit! Your down payment didn't go away. It's in the property. If you put 20k down, it's not gone. If you sell the next day, you will get your money back. If you sell in 10years, you will get your 20k back and appreciation, and principal payments too. Plus the $100/month. Your ROI is really low but it cash flows.
    2Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    @Robert Herrera  I'm thinkin if I spend 3% to buy closing costs and another 8% commission and closing cost to sell (total $11,000) on a $100,000 rental and cash flow $300 a month it's a minimum of three years to get to the place of where I'm starting to get my closing and sales costs money back. and that's if I don't have vacancy's. Then it's another 66 months to get my down payment back. Total hold time being  102 months. 8.5 years. At 300 a month CF thats $30600 as you say profit. Now let's sell the house for $125000  After 8.5 years the loan pay off is $67000 plus $8000 closing plus $3000 purchase plus $20000 Down pmt.  total is $98,000. $125000- 98000 is 27000 dollars. Paid to me at closing.  subtract Capitol gains tax and allow for depreciation reclaim  (about $3500 a year) times 8 years or $2975 dollars and I'm down to negative dollars profit before Capitol gains tax. That's after 8 years.  Capitol gains is 25% of the first $40,000 CG. (If I remember right).   How long do I need to hold this property??  RR

    0Reply
  • Rich Baer
    Real Estate Investment Attorney · Kingsville, MD · Member since 2016 · 643 posts · 408 votes
    10y

    @Richard Chan

    1. Specialize in one area of real estate.

    2. Stick with it.

    3. Do it yourself (no partners).

    4. Do it quietly.

    1Reply
  • Robert Herrera
    Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
    10y
    Ralph R. Buy a different property. I buy in southern Colorado. I buy around 50-100k. I cashflow about $400/month+ per property. That's around 5,000/year per property. 10,000-20,000/ down. That's around 25%-50% annually. Plus my money is IN the property.
    0Reply
  • Robert Herrera
    Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
    10y
    Ralph R. Also your down payment is given to you at closing, it doesn't magically go away, it equity in the property. If you buy a house for 100k and put 20k down, you owe 80k. If you sell for 100k the next day, 80k goes to the bank to pay off your loan, and 20k goes back to you, obviously minus the expenses to do everything.
    0Reply
  • Evelyn Roper
    Investor · Oklahoma City, OK · Member since 2016 · 98 posts · 51 votes
    10y

    I am just starting but my advice would be to save!  Save more than you think you will need because it feels better to have a cushion.  You won't have to worry about how to overcome every little financial set back that comes your way.  I think it is better to start small than to over leverage from the start and build a house of cards that one overlooked expense can cause to tumble.  Things will come up.  Be prepared!  Build a strong foundation.  Through education and also with your finances. 

    0Reply
  • Ralph R.
    Investor · Bethel, AK · Member since 2013 · 1k+ posts · 852 votes
    10y

    @Robert Herrera Your absolutely right. Your money is IN the property. That's my whole point. You Cant spend equity. I figured the loan at $80,000. Balance after 8.5 years is $67,000. That's why I added the $20000 on at the sale. The $67,000 only accounts for $80,000. You paid $100,000 that's why I subtracted the $20k deposit out of the sale price.   Your no different than my self. I buy in Pueblo too.  Been doing it 10 years. I don't buy war zone though.   I've looked at those older cheaper houses there. I hope your figuring around 15% cap ex. Don't look for much appreciation either. I've been buying there for 10 years. Houses just started to go up a little. It's trickledown from the high prices in Collins Denver Loveland. Housing in the springs pueblo and canon just started to ease its way up.   It's been slumped since 05. Rents havnt gone up much either. 1.5-2% a year. Recently a little more. If you use the calculator here on BP you will see what I'm talking about. RR

    0Reply
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