All Forum Posts by: Austin Fruechting

As GaryV has said, the best motivation in 3 words is: "You're gonna die"

That's not a new concept. "Memento Mori" is an old Latin phrase meaning "Remember that you will die"

Think about if you died... would you be happy with the things you've done? What are the things that you've left undone or never did? 

It doesn't matter how healthy or young you are, any day could be your last. So go out and do the things you've put off for "someday"... Someday is just another word for never. Get off the sidelines. START INVESTING. Take that trip. Climb that mountain. Start that business. Experience life! 

Change your "someday" list to an actual checklist that you WILL do... someday may never come.

Here's a #TBT to when I should have died four years ago.  I was 28 and in fantastic shape, and could have easily died. I crashed going 65mph straight into a guard rail when I dosed off for just a second driving one night...

I posted this in a thread a month or two ago:

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"With my current portfolio and what I just closed on, I am on track to pay property managers just over $70k for 2017 and over $80k for all years following.

I see those numbers and smile. I think about how great it is that that is all is costs me for them to deal with 141 units worth of the unit turnovers, showings, work orders, and rent collection of over $1mil per year. All this while I'm sitting outside, sipping my morning coffee, and deciding what I want to do for the day.

I self-managed in the beginning, but there will come a point where you won't have enough time for your day job, self managing, and still be finding/making new deals. Of those I chose to let the management go first because it definitely wasn't anywhere near a full salary (at that time). Plus I had done it enough to know I did not want to be doing that for the rest of my life!"

Eventually, hopefully you have enough properties that you can live on the cash flow with someone else doing the work.  If you don't make money with a PM, and you have so many properties you have to leave your day job to become a full time property manager then you just own a job.  Not necessarily a bad thing because at least you'd be working for yourself.  But I'd rather make money with a PM and be a passive investor... free from working for anyone. 

I average 1 hour per week total, and that includes my end of year tax prep. An average month is probably 30min a week (nearly all of is just transposing the owners statements into quickbooks for my various LLC's). And if I die, my wife wouldn't have to become the full-time PM or sell everything.

Those are some reasons why you should factor it in, even if you are self managing for the time being.

Thanks Deshawn! It turned out really well. I've done a few BRRRR's that I net out additional cash. So this was always the back up plan, but I wasn't expecting quite this much. With the $135k appraisal I'm really glad no-one bought it when I offered it to some investors (as did my property managers). I would have ended up with less cash in my pocket after paying the short term income tax if I sold! And I'll make a few hundred every month going forward.

Yeah, you aren't making a "profit" in the traditional sense, but if you re-paint the scenario as "what would that $175 a month do if you put it in an retirement account" you are certainly coming out better on the balance sheet. There's a lot of equity there you could put to use in other investments if you sold it. And you could definitely beat the returns elsewhere in REI, but compared to an investment account you're killing it on the $175 a month investment. The question to answer for yourself is how does it all play into your overall goal and plans.

You definitely have an investment that is increasing your net worth.  You could look at it more as putting $175 into a retirement account, except you're coming out much better than that...  You get: 

• The principal paid increases your net worth
• The high NYC appreciation increases your net worth
• The expenses & depreciation decease your taxable income, probably saving you more than $175 a month just in taxes you have to pay. 

THIS IS NOT THE ANSWER FOR EVERYONE:  

I don't have a dime in retirement or investment accounts.  I would have passed on free money with an employer match if it meant slowing my real estate accumulation.  Here's why:

What's your target income to be financially free and live the life that optimizes for happiness?  I'm going to assume it is close to the magic number of $85,000 per year (studies show that's the the point where money and happiness cease to have much correlation). 

There is a general rule of thumb in the investment world that a fairly safe annual withdrawal amount is 4% for indefinite retirement. This is the amount should be able to weather the ups and downs of the market safely provided there isn’t a big downswing right away. That means you need to have 25X your annual spending in an investment account to retire. It doesn’t matter what age you reach that amount at, you’ll be covered. If you are using traditional investing that means you would need $2,125,000 in your investment account to retire.

That’s a scary number right? How on earth do you get to $2,125,000?! If you adjust the S&P 500 for inflation and dividends the historical average is a 7% return. Let’s assume you are starting from zero. If you can put $2,000 per month, every month, away into index funds in a tax-deffered retirement account, it will take 29 years to reach that goal. So at $24,000 per year invested and it would still take 29 years! What if you want to get there in the same ten years that I believe anyone can with investment real estate? You would have to invest $12,500 PER MONTH!! That’s $150,000 PER YEAR for a total of $1,500,000 of your own money invested. 

THE MAGIC NUMBER WITH RENTAL PROPERTIES

The interesting thing about the $85,000 per year number is that was almost the exact number my wife and I came up with when we budgeted for our ideal life. My wife and I took the time to reflect and think about the life we would want to live if we were financially free. We figured out the life that would provide us the most happiness and fulfillment. Then we calculated what that would cost per year it was almost exactly the magic number of $85,000 per year. We made it in UNDER SEVEN YEARS. 

If we wanted to achieve financial freedom using the 25X rule, we would have had to invest $20,000 PER MONTH, $240,000 per year for a total of $1,680,000 of our own money.  What did it take us? About $150,000.

So yes, I personally would choose to give up on the free money from the employer match on the 401k. I could make far superior returns with half the money in real estate. 

The refinance happened today.  I have an additional $14.5k tax free cash in my pocket right now than I did before I bought it, and will continue to make some ok money going forward ($1500 rent on $108k mortgage).  

Now I'm just waiting for the furniture maker to finish up designs and get started building!

That's awesome Kathy!

There are so many ways you can calculate, and it depends on your plans with the property. Are you a long term buy and hold investor? Are you planning on exiting this property in say 5 years? If you plan to exit you would probably want to use an IRR calculator based on quarterly/monthly entries of your cash outlays and cash intakes.

I'm a long term buy and hold investor. For my internal analysis, I want to know how my property is going to do over the long haul based on the cash I have left in (long term average Cash on Cash Return). So in your scenario I would make assumptions for an average cash flow that has all expenses including the vacancy and CapEx. Let's say that comes to $250 per month, $3k per year. I don't really factor the initial few months of the cash outlay in a BRRRR a property, just what is left in. You'll be making an average of $3k on $13k invested for a 23% average cash on cash return.

Congrats on getting out of the consumer debt!!! 

I would recommend reading Rich Dad Poor Dad and re-framing how you look at money and certain types of debt. There is an enormous difference between credit card debt and "good debt" like that on a rental property... the type of debt that puts money in your pocket every month and lets you compound your earning capabilities. 

Everything you do, and everywhere you put your cash involves a certain amount of risk. Cash in investment accounts, cash under the mattress, cash used as down payment... there is risk to all of those. 

Study, study, and study some more. 

Maybe you could BRRRR a property and buy/fix up in cash. Then after you rent it out you could refinance it at a level you feel comfortable at knowing the rents you will get from it.