what on Earth can beat RE and generate a 100%+ return in 2 years?

Real Estate Deal Analysis & Advice
10yFollow

what on Earth can beat RE and generate a 100%+ return in 2 years?

Huy N.
Houston, TX · Member since 2013 · 481 posts · 189 votes

Hi BP community!

Just want to share with everyone another simple and boring deal that generate over 100% return over two years. How many time have you heard people said something like real estate is complicated and risky? This is to prove that you can keep real estate as simple as it is and it still generate a crazy return.

Long story short, this is one of the rental that i bought 2 years ago for 80k from a whole wholesaler. put 10k of rehab into it. I then refinance it out at 25% down payment - 20k with the mortgage at ~$540 a month. The house quickly leased for $1250 and it's needless to do the ROI. with $1250 rent and $540 P and I. the return is like a rocket shooting through the roof

The tenant moved out after two years and I decided to put it up for sale at 130k. the house quickly got a contract in less than 30 days of listing and then sold 2 months after that to a happy home owner. With the sale price of 130 minus selling fee and mortgage payoff. i was left with a 47k check.

I put 20k into the house 2 years ago. now i am getting the check for 47k. Not to mention all the rent income received for the last 2 years and the tax benefit.

what vehicle on earth can beat real estate investment and generate a 100%+ return in two years? If you found one, please let me know

Also, do you think that i should keep the house forever, or selling it after 2 years is a good idea? I would love to hear your comment below

Thank you!

Here is some pics of the house

and my fancy check after 2 years of hard work. I might cash out too early, you think so?

8Reply
81 views

Most Popular Reply

Curt Smith
Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
10y

Good one.  The unmentioned key which is never talked about in buy and hold posts is:

- best appreciation happens in rentals bought in top school districts via great schools rating.

- buy cute curb appeal in nice nieghborhood.  

- If you buy in small towns like me, also deep study jobs and new jobs sources.  Only buy in the path of job increases.

Sounds like this deal did this well BECAUSE of one or more of the above was in play.  Its a necessity to know why a deal did so well so one can hope to replicate it or share with others to replicate.

Buying a cheap house in the hood will never do this well.  Rough areas don't appreciate nor attact occupant offers bidding the price up.  Only the above points will cause this to happen.

Good luck folks.

5Reply
See this reply in the discussion

42 Replies

Jump to latestLatest
  • Huy N.
    OP
    Houston, TX · Member since 2013 · 481 posts · 189 votes
    10y
    Originally posted by @Curt Smith:

    Good one.  The unmentioned key which is never talked about in buy and hold posts is:

    - best appreciation happens in rentals bought in top school districts via great schools rating.

    - buy cute curb appeal in nice nieghborhood.  

    - If you buy in small towns like me, also deep study jobs and new jobs sources.  Only buy in the path of job increases.

    Sounds like this deal did this well BECAUSE of one or more of the above was in play.  Its a necessity to know why a deal did so well so one can hope to replicate it or share with others to replicate.

    Buying a cheap house in the hood will never do this well.  Rough areas don't appreciate nor attact occupant offers bidding the price up.  Only the above points will cause this to happen.

    Good luck folks.

     Curt,

    you are right on the point. most of my rental is in the B to B+ area with ok school district that make it easy to exit out by selling to homeowner 

    1Reply
  • Myles Ngumezi
    Missouri City, TX · Member since 2015 · 52 posts · 5 votes
    10y
    This is an awesome thread! Congratulations Huy N. And keep crushing it! An inspiration for a fellow Houstonian like myself.
    1Reply
  • Jett Rao
    Flipper · Calgary, Alberta · Member since 2015 · 99 posts · 15 votes
    10y

    Very well done man! Hope you can keep replicating success like this. 

    1Reply
  • Nicole Wilson
    Real Estate Agent · Houston, TX · Member since 2016 · 12 posts · 7 votes
    10y
    Hello and welcome to BP! I too am in the north Houston area and must say that is definitely a great deal kudos to you !
    1Reply
  • Mike F.
    Investor · Denver, CO · Member since 2015 · 570 posts · 521 votes
    10y
    Originally posted by @Huy N.:

    what vehicle on earth can beat real estate investment and generate a 100%+ return in two years? If you found one, please let me know

    Great job.

    To answer your question, the stock market. Looking at 65% return on oil since February and this return is just getting started.

    1Reply
  • Curt Smith
    Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
    10y

    @Mike H.   I have to agree with Mike H and do this myself.  REFI out cash after 2-3 yr, combine with cash flow and buy one or 2 more.   This goes geometric after 3-4 years of building a portfolio while still working a day job to fund living.   We went from 1 house 5 yrs ago to 33 today.  10 houses last year, just 4 so far this year (June) funded by the geometric leverage of REFI + cash flow + some portion of W2 = ever increasing portfolio size.

    Friday I give notice after closing on #34!   Near zero effort self managed using the 3 rules above plus a few minor ones and smart tenant selection.

    You can't quit your day job on the passive income from rentals you sold no matter how much you made.  :)

    I'm not taking away from this trade, I'm just putting it into perspective of the goal being to quit the day job (least for me).  I don't care what my paper gains are, it's the monthly cash flow and only the cash flow that I care about.

    The metrics I care about and have not calculated are:  #hours per $ of cash flow.  This is both initial hours finding, buying, fixing, renting.  Then the 2nd metric how much effort (hours) to maintain each $.  This later metric I know is very low for our business.  I don't care about % capital gain as a metric (this article) because I can't buy beer or airplane tickets with that (unless I sell and then I lose the cash flow...).  I only care about passive cash flow, because some mornings (after 2 weeks from now) I may not get up until noon.  :)

    BTW I exaggerated quite a bit to make a point that passive income to those wanting to quit a day job and have "choice" is worth immeasurably more than the potential of buying another deal with a cashed out capital gain that I'm now paying taxes on.

    There is no "one" way.  I'm just describing "my" way.  Best of luck to all.  

    2Reply
  • Joe Scaparra
    Investor · Austin, TX · Member since 2013 · 662 posts · 1k+ votes
    10y

    Good Job Huy.  When you ask  a question: good idea to sell or should I keep it long term, you are bound to get all kinds of answers.  

    To clear up a few comments.  1031 can be a good idea but you have to identify property to exchange for and you must accomplish the exchange is a specific time period.  Additionally, you CANNOT TAKE POSSESSION of MONIES transacted from the sell, you must use an intermediary until the 1031 is complete.  

    Now to your question Huy.  It depends on your objective.  If it is your goal to keep building cash to buy more properties maybe selling is the best course of action.  However, even with that goal there are options to get cash out and still keep the property.  However, if your goal is to create continuing source of predictable and sustainable cash flow for something like retirement planning or replacing job alternative then keeping the property as a rental would better meet those needs.  

    As for me, I am 61 and looking to retire soon so I am extremely focused on creating cash flow from multiple sources.  BTW it doesn't matter the age, the earlier we start solving retirement cash flow the earlier we can either retire or do the things we want to .....its called Financial Freedom.  It is hard to get risk free yield today.  Real Estate is not risk free but when you are renting out at $1200 or below,  those in needs are increasing thereby reducing your risk of finding a qualified renter.  Lastly, you can always take a cash out refi on the money you personally put in the deal and keep moving down the road with none of your original money invested.   

    Don't look back, keep moving forward, and keep making good decisions!

    5Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    10y

    Nice work.  Your exit strategy really depends more on your personal needs.

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    10y

    @Huy N. there are lots of investments that could return 100%+ in two years. It is a matter of buying at the right price and right time. I personally would not have sold the property. Lets say for sake of round numbers that you are taking home $500 a month in cash flow. You just cashed out to double your money and "make $20K" profit. If you had held on to the property for 3.5 more years, you would have made that $20K in cash flow and would have more value when you went to sell. Sorry but I see lost opportunity here. All you did is found a way to send more money to the federal government.

    0Reply
  • Marcus Johnson
    Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
    10y
    Huy N. Aren't you forgetting Capitol gains tax of 15% on the 50k? So that would be $7500 in taxes.
    1Reply
  • Huy N.
    OP
    Houston, TX · Member since 2013 · 481 posts · 189 votes
    10y
    Originally posted by @Marcus Johnson:

    Huy N.
    Aren't you forgetting Capitol gains tax of 15% on the 50k? So that would be $7500 in taxes.

     Hey thx for bring up this aspect. the gain is 30k since 20k of it is the capital so it should be less than that. and yea. I think i can deal with that. Definitely for bigger deal,1031 exchange should be the way to go forward.

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    10y

    @Huy N. don't forget your two years of depreciation recapture which is probably another $1000 you get to pay the federal government.

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    10y
    Originally posted by @Huy N.:
    Originally posted by @Marcus Johnson:

    Huy N.
    Aren't you forgetting Capitol gains tax of 15% on the 50k? So that would be $7500 in taxes.

     Hey thx for bring up this aspect. the gain is 30k since 20k of it is the capital so it should be less than that. and yea. I think i can deal with that. Definitely for bigger deal,1031 exchange should be the way to go forward.

     I am not an accountant, but I don't think when you calculate capital gains that you get to subtract your cash investment. In basic terms you pay capital gains on your sale price - purchase price. Otherwise what if I paid $100K cash for a property and sold it for $200K. Following your logic, I would pay no capital gains. Whether you finance or pay cash has no effect on capital gains.

    0Reply
  • Ravi P.
    Investor · Schaumburg, IL · Member since 2015 · 219 posts · 104 votes
    10y

    @Huy N.

    Congratulations on the sale. You cannot complain about walking away with a nice check like you did. If it was me I would have applied the BRRRR method (Buy, Rehab, Rent out, Refinance, and Repeat).  

    You could have cashed out your initial investment and possibly some of the appreciation, tax free! 

    I'm not going to bother with rebuilding a proforma but I assume you would have had a decent cash flow generating a few hundred dollars a month in rent. 

    You would be able to depreciate the property on your taxes.

    You probably spent close to $15k on transaction cost related to the buy and sale of the property.  Money you will never get back and eats into your P&L and net worth.  

    The BRRRR method is just my preference. I am trying to scale my portfolio of 5 Buy and Holds. The biggest downfall of this method is it require a lot of capital to grow quickly. I am only able to buy a property or two a year. With prices soaring its is harder to find good deals. 

    1Reply
  • Matthew Johnson
    Holyoke, MA · Member since 2016 · 8 posts · 0 votes
    10y

    Huy,

    I just read your post regarding the house you bought for 80k from a whole wholesaler.  Sorry, I'm pretty new to this, what is a whole wholesaler?  Also, and again, I'm new at this, why did you refinance right after you purchased and put 10k into the property?  I'm guessing because you added value to the house?  Just trying to figure everything out.  Thanks

    0Reply
  • Huy N.
    OP
    Houston, TX · Member since 2013 · 481 posts · 189 votes
    10y
    Originally posted by @Matthew Johnson:

    Huy,

    I just read your post regarding the house you bought for 80k from a whole wholesaler.  Sorry, I'm pretty new to this, what is a whole wholesaler?  Also, and again, I'm new at this, why did you refinance right after you purchased and put 10k into the property?  I'm guessing because you added value to the house?  Just trying to figure everything out.  Thanks

     Hey thanks for the reply and congrats on finding bigger pocket. wholesaler buy property at a discount and sell it to you for profit.

    People refinance because they want to pull their money out to leverage into other investment. if you put nothing down and still have cashflow. that's infinite return. nothing can beat that.

    welcome to BP again

    0Reply
  • Dan K.
    Investor · San Antonio, TX · Member since 2013 · 88 posts · 44 votes
    9y

    nice job and thanks for sharing. I would keep every rental if possible and try for the "infinite ROI" concept that Ken McElroy does. It's harder to do this in single family homes I realize.

    Property taxes in Spring are close to 3% per year so I can see why you want to sell.    I have some properties in nearby cypress.  

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free