All Forum Posts by: David Roberts

who are the good and bad ones if you don't mind?  Im vetting some out. Pm me. Please

i ask myself why anyone would pay 650 a month to rent a house in a bad neighborhood.  But then i realize that our environment is all we know and it is where we grew up in.  Even if these people knew they could rent an apt for 650 a month just outside detroit in a much safer and cleaner city, they would probably still elect to live in detroit.

im not a big city guy. My opinion is bias, and i had bad experiences when i was younger that happened in detroit.  I honestly don't even like driving through it.

i wish other investors would stop coming here and taking up all the income properties frankly.  Lol. Its making life harder for me!  Yea that's right,  I'm being selfish :p

scott sure is a fiery sob lmao

i was thinking the same scott. Detroit can't give those houses away and they want me too pay 3k over the house,  per house. Nope

So, put a 2-300/month loan on 2 properties (say 4-600 a month in P/I) paid by the tenant to acquire another 4600 per month?  Sounds like a pretty good strategy to me.  

Compound interest.  The earlier you do that the better. 

He's not more profitable if you look at the money in his hand, even with 1 house each.  He starts behind 100k.  I start behind 20k if I buy the same house with 20% down.  If nobody does anything more then eventually he overtakes me, like 10 years down the road.  On a net worth basis 1 house per, 1 mortgaged 1 not, asset value the same, then yes he has a higher net worth.  It only makes sense to leverage if one is going to re-invest it.

In Michigan the 20% down versus all cash isn't as drastic as 1000 to 200 cash flow.  It's more like 700 vs 500.

But anyway, check this out:

All cash scenario:

Buy 1 house 50k, all cash, cash flow 700/month, 8400 a year. 

6 month cash out refi

Buy 1 house 50k all cash, cash flow 500/month, 6000 a year.  Cash out at 6 months, buy house 2, 50k all cash, cash out refi, 500/month cash flow 6000 a year. 

8400 < 12,000, same time frame, using leverage with 2 mortgages, same money.  And he never catches up, ever.  Gets further behind every year for 30 years and then gets even further behind by 400 more a month every month from 30 years to death.

Assume ARV = 80k on these houses:

Scenario 1: 80k asset + 8400/year = 88,400 net worth

Scenario 2:

20k asset +  6000/year = 86,000

20k asset + 6,000/year + 60k in the bank = 26,000

Net worth = 112,000

It only gets worse for the all cash buyer to keep leveraging the same investment money over and over and over.  The same 50k can grow instant equity over and over and over. 

It's basically the same situation to start off with 2 20% down mortgages at the same time but gets even worse for the all cash buyer.  A little bit more profit but the 20% is trapped in the house  unless both get refinanced to get the 20% back out in 6 months.  Just more closing costs.

Either way, leverage wins.  By definition leverage should win, all things considered equal.

And I don't know why people seem to forget about compound interest.  10 houses today is going to compound much faster for you than 5 today and 1 every 6 months for 2.5 years, all things equal.

The market is hot for rentals here, and it won't be that way forever.  Gotta take advantage now.

But the key word is PROFIT.

From scenario one, all things considered, he is more profitable because if the asset is the same value then he earns 8400, his net worth is higher.  The problem is that the net worth is fictional, unusable, and subject to substantial market risk.  I dunno, but it's an interesting conversation to have.  I enjoy it.

ill be there.  Yay

Yeah not trying to bring up all the variables, just keep it simple.  These are projections.  Both situations have expenses and variables.  but on a projection basis, and leverage working FOR you and not against you (market collapse), by definition leverage wins and is more profitable even though there's a cost for the leverage.  the cost is covered by the customer, i.e. the tenant. 

So in theory it costs me zero to obtain 2 houses with 2 cash out refis. 

the math suggests to me that leverage makes you more profitable using cash out refi method where you buy all in at 75% arv then cash out in 6 mo.  That versus buying all cash. 

Myself and a friend have been debating it for weeks. He believes using no leverage makes you most profitable.   I keep rrunning the math and its just not making sense. 

We both start 60k cash.  Buy 60k house arv 80. He flows 8400 a year,  i flow 5500 with debt.  Cash out 6 months later,  get second one,  now i flow 11000 a year.  The end. He never catches up if we both stop here.  What am i missing?   Say it takes him just 2 years to save 60k. By then id have 4 going on 5 houses all flowing 5500x4=22000, versus 11000 all cash. And used the same 60k 4 times with it right back in my hands. 

All things equal. I don't get what I'm not seeing that he is.  Maybe he considers all the interest as less profit taking. 

wow awesome