All Forum Posts by: Eric Schultz

Riley Holt Choose durable finishes for a better chance of durable income.

Dan Handford Nice! Tyler H. San Antonio is another that is starting to gain some popularity.

Ahmad H. The suggested 3% appreciation could also just be interpreted as 3% inflation. Maybe 2% sounds better? Either way, leveraged at 5:1 it is still a 10% ROI on your 20% down payment. This is already better than an 8% ROI on an index fund, which doesn’t even factor in capital gains tax. Selling the property down the road is only one of the many exit strategies. How about seller financing or a 1031 exchange to reduce transaction costs and pass along the tax benefits? A positive cashflowing property can easily be 3x the ROI of an index fund even with your suggested % reductions on the simple ROI calculation.

Anthony Wick Revised: Example income property ROI calculation with 20% down: 7% cashflow + 15% (3% at 5:1 leveraged) market appreciation + 5% tax savings & benefits + 4% loan paydown by tenant + 3% inflation-profiting / debt erosion = 34% ROI Compare this to a mutual fund ROI with dividend in a taxable account: 7% capital gains + 2% dividend - 1% expense ratio - 1% transaction cost - 1% cash drag = 6% ROI

Anthony Wick Tough market. Stand by your process and stick to running numbers with 20% down. Turning more of your cash into equity (i.e. 30% vs 20% down) at the front end of the deal only makes sense if you are getting much more favorable financing. Remember, you get zero return on equity in a property. A dollar is not a dollar is not a dollar. I would agree that calculating your ROI could look a little different with the competition today. Cash on cash ROI is important for those only investing for cashflow, but there is more. Example income property ROI calculation: 7% cashflow + 3% market appreciation + 5% tax savings & benefits + 4% loan paydown by tenant + 3% inflation-profiting / debt erosion = 22% ROI Compare this to a mutual fund ROI with dividend in a taxable account: 7% capital gains + 2% dividend - 1% expense ratio - 1% - 1% cash drag = 6% ROI It still makes more sense to invest in positive cash flowing real estate, especially with bonus depreciation in the tax code for the next few years.

Tessa Malmgren Since HELOCs are variable rate (prime rate + X%), they are best used in shorter term deals. Either way, go lock up that HELOC! It can serve as an emergency fund and allow you to be more aggressive with your other cash savings and assets.

Joshua Gregory You will have to run the numbers (based on your credit score) for the cash out refi to compare. HELOCs are variable rate (prime rate + X%). A cash out refi could be done as a 30-year fixed rate. Cash out refi closing costs are usually higher than HELOC. Depending on your credit score and relationship with the lender, you can avoid closing costs on the HELOC.

Samuel J Gonzales IV Increase your savings rate. This is best accomplished by increasing your income and reducing expenses at the same time. If you have a self-directed IRA than you could accelerate savings with pre-tax contributions to invest in real estate. If you do not, than you will need to use after-tax dollars which may stretch out the savings period some. If you can use smart leverage with a loan on your investment property, this will get you there faster as well (i.e. saving for a down payment vs saving cash to buy out right). To move things along quicker, take action in multiple ways. Increase income, reduce expenses and get pre-approved with a lender. The financial vehicle used to “house” the dollars is less important than getting to the point where you can deploy the dollars on a solid investment opportunity.

Lauren Cooper Done correctly, you should be able to conservatively generate $50k - $75k per year in passive income with $500k invested in other people’s real estate deals. As others have said, educate and network. Only invest with people you know, like and trust. Diversify the $500k into several deals to generate separate income streams. If this $500k will allow you to reach accredited investor status, you will be able to participate in larger multi-family syndication deals as a limited partner with solid operators. I would suggest finding an operator that executes the “infinite returns” model, meaning you have your original invested capital back (say $50k) in about 4 years and still remain as a limited equity partner in the deal. Read up on the “velocity of money” concept. You can essentially be in (2) syndication deals at once with that same $50k, if done correctly. You may also look into something like AHP Servicing (Google it). This might be a good home for earning 10% on $50k - $100k right away, while you educate and network further.

Jameson Hooton The intent of your question is good. Some would argue that Return On Time Invested (ROTI) is just as important as Return on Investment (ROI). I think putting more emphasis on ROTI makes more sense when you make the switch from real estate investing being just a hobby to real estate investing being a business. Some would argue that buying a turnkey property is overpaying because you are buying someone else’s flip. However, if you make $200 / hour at your day job, should you be spending your time acquiring and flipping a property yourself? Probably not. Your ROTI is much higher with your day job than it is with being a direct / active investor flipping a single property at a time. Some of the highest ROI tasks of an active investor are making offers and negotiating the terms of the deal. The point is that you should be aware of your ROTI so you can better focus your time.