All Forum Posts by: Austin Fruechting

Originally posted by @David Faulkner:

I'm so sick and tired of the it is too expensive excuse ... you don't think that many of us that started investing in CA started with very little? And rather than looking to those that have built up something and trying to figure out how you start with very little and build it up to something, they use the excuse that they can't afford it and can't get started because it is too expensive.

That to me is almost as funny as calling somebody who is many times wealthier than you a complete idiot because they spend more money on their properties rather than try to figure out how it is that they got to be that wealthy in the first place and why do they choose to spend their money in that manner. I'm not talking about me here with that statement ... I am a nobody, a minnow in an ocean of really big fish, mostly by design, but I'm at least open minded enough to think that maybe there is something to be learned from those really big whales.

Which brings me back to my original question ... why is it so expensive here? Why is it so cheap other places? Does being cheaper mean that it is lower risk and the profits will be higher?

 A cash flow guy trying to throw the appreciation guy a bone... even saying I want to/plan to invest in those markets in the future...  

I don't know why you poop on the cash flow guys so much.  Maybe it's because so many of them poop on the appreciation guys.  I understand the market.  I understand the numbers.  I understand there are countless ways to make money in real estate.  That's what is great about real estate.  Wherever you're at, whatever your circumstances, there is a path.  

I also know that if I were starting at the same point in time, with the same money, it would have been much more difficult to be retired in under 7 years if I were investing in LA vs here as a buy and hold guy.  Would it have been possible in LA? Yes. Would it have been as easy? No. Spending $400k to get $2500 in rent is a lot tougher to move along in a fast manner then spending $100k to get $1500 in rent. 

Some basic analysis (and I'll leave carry/closing costs out of it)

REFINANCE:

Let's say it appraises at $130k.

Your all in at $84k 

Assuming you are refinancing at 75% LTV you cash out $97,500

You put $13,500 in your pocket, cash flow going forward, and someone else pays the mortgage

SELLING OPTION:

Let's say it appraises at $130k

After realtor fees, negotiating, and concessions say you get 90% of appraisal 

Net: $117k

You're all in at $84k 

Profit: $33k

What's your normal tax rate? 30%?

Actual net: $23,100

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The actual difference is less than $10k in your pocket.  Personally I would rather have $13.5k and a property than $23k and no property. 

The only way I would 1031 is if I had already targeted the property I wanted to purchase, and then sold a property to move up.  I would not sell something and then try to force a purchase.  I would rather take the 15% capital gains hit and wait for the right property.  Say the gain is $100k, I would probably do better paying the taxes, waiting for a great deal and investing the $85k then trying to force the full $100k into an ok deal. 

@Matt R. I'll take a stab at answering the question as to having the highest total profits....

Any area that has something unique to offer that people want will have high appreciation because of basic laws of economics.  Add to that many of those areas were hit pretty hard with the 2008 crash, and therefore had a tremendous opportunity to rebound.  As such they had incredible gains in that period of time since then in both appreciation and rental growth.  I believe going forward coastal towns will still always provide the greatest appreciation opportunities due to the fact that there is a very limited supply of coastal properties. History has proven that even pre crash.

To @David Faulkner 's point(s) - I don't think it's that people are appreciation haters, I think people go after the cash flow (and the areas that provide cash flow) because purchase prices are lower and they can move quicker along the path. They are looking for financial freedom in the shortest window, not just net worth on a balance sheet. I doubt I could have obtained financial freedom in under 7 years given a very meager starting position if I were investing in LA and San Fran; mainly because the amount needed for down payments and not having the cash on cash return to immediately funnel back into the machine.  

If financial freedom is the goal and you're an average investor starting with say just $25k, cash flow on cheaper properties is the way to go. LA/San Fran/etc is out of reach. $25k isn't going to get you anywhere in those markets. They'd have to diligently save for another several years just to get one property. However; if you are looking for long term wealth building and net worth growth, those types of areas are definitely where you want to be in. 

Now that I have reached my goal of financial freedom, I don't know that I'll be investing my own money in these plays much going forward. My plan is to begin stockpiling some cash reserves over the next few years. Then the next time one of those types of markets takes a hit hopefully I can pick up a house or two and get some awesome appreciation and net worth building and be able to be a part of getting the highest total profits.  But even with all I have that will take quite some time of saving up to get even one decent property then.

All my cash out refi's have always been based on appraised value, not purchase.  The smaller properties have not required a seasoning period with the two lenders I have worked with on these (4 units and under which is non-commercial).  Some may still require a shorter seasoning period like 6 months as @Joseph ODonovan stated, but some will refinance after it's leased on the smaller stuff. 

Bottom line, talk to more banks and you'll find one that does it on appraised value. 

Here's a good analogy for your truck:

Me: "Man, I've had no luck getting my six-pack to show and really want abs" 

Also Me:  (reaches for another slice of pizza and grabs another craft beer for the 5th night that week)

Friend 1: "Maybe you shouldn't be eating pizza and drinking beer if you truly want a six pack."

Me: "But I really like my pizza and beer 5 nights a week, and I have to eat something... so how do I get six pack abs?"

Friend 2: "Dude???????..."

.

It's clear to see my desire for pizza and craft beer exceeds my desire for the six pack. I may want a six pack, but clearly I want the pizza and beer. 

If I own that decision, I'll be much more content realizing that I desire and am actively choosing the pizza/beer over the abs... or when I truly decide I want the six-pack more than the food and beer, it won't be a sacrifice to give that stuff up. 

Adding in: You can either make excuses, or make progress. I don't believe you'll ever find a successful investor or entrepreneur that allows themselves the luxury of excuses. (this all fits in with taking 100% responsibility for yourself and your decisions)

Originally posted by @Tony Wooldridge:

@Austin Fruechting, you most certainly hit the nail on the head, your freedom number doesn't have to be revolved around $ or stuff to make you happy.  I believe, if you are able to free up your time to do what every you want with it that truly (for me) is worth its weight in GOLD!  However, if you can find a means to support your life style to do what ever your personal reasons are that is the key to it all.  Thanks for stopping by to share your thoughts.  Here is to wishing you success in your 2017 ventures!

 Thanks Tony! And that's exactly it! What would you do with your time, etc if you didn't have to work? What actually provides true happiness/adds value to your life? It sure as **** isn't a fancy house, a fast car, and some Rolex's! It's time additional time with your family, volunteering, reading, enhancing yourself, etc and doing other activities that provide actual lasting happiness. 

The real question is who knows what life they would live if they were financially free?

If you know that, you can calculate your personal freedom number. If you don't, no amount of income will make you happy because stuff will never make you happy. Doesn't matter if it's $50k per year or $1mil per year. 

There was a study about money and happiness. Beyond $85k per year there is no real direct correlation or at most a very minimal correlation between money and happiness (adjusting for inflation as the study was a few years ago).  

Originally posted by @Russell Noga:

You can't get rid of your truck now because you're 23 and don't know better. That will come with experience and you'll look back and laugh on what you're saying right now. You want to be rich and have income producing assets? Or do you want a job your entire life? Big boy decisions now, ditch the truck. You want great advice but you're not willing to act on it if it doesn't fit your lifestyle choices.

Get rid of the truck, get a second job, raise your income. Your 23, now is the time to be working your butt off. Start making responsible decisions now and you could be very wealthy at 33. THEN you can buy any truck you want. 

 One post, 51 likes and deserved! Well said Russell.

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Omar, come on man! Don't f-ing complain about not being able to get into real estate when you've made the decisions you've made that prohibit you from getting into real estate and refuse to go back on them. Own your decisions! Your decision and desire for the truck clearly trumps your desire to be in real estate. Own it! Until you realize you are 100% responsible for your decisions and actions there's no hope. 

I reached financial freedom at 32 after starting in REI at age 25. I had 107 rental units when I reached that point. My ownership equated to 70 rental units and I was driving a Jetta with ~190k miles on it and had a work truck with just over 200k miles on it. I loved the Cadillac CTS-V coupe when it came out and could have technically afforded it, but my priority was to put money into real estate, not a car. After I had hit financial freedom I finally got a new truck this year. My new truck equates to approximately 3% of net worth. What does your $45k tuck represent of your net worth?

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OWN 

YOUR 

DECISIONS