Originally posted by @Jerad Miller:
Originally posted by @James Wise:
Originally posted by @Jerad Miller:
Originally posted by @Federico Gutierrez:
Does anyone every take time to consider just how much rehab a 10-20K property requires?
Not to mention these are rough neighborhoods. Even if you fix it up I can bet your going to face on going issues. My main concern is you'll probably get broken into during the project and have things stolen.
You will find that your going to get very bottom of the barrel properties which require a lot of money, so refinancing them you've still got a large percentage of capital tied into their even at 70% of the ARV. Plus still remember your in a bad area so thats capital you may not recover should something go wrong down the line.
Federico,
You bring up some very valid points. The only reason I have behind going with the distressed 10-20k properties is that is pretty much what we have to start our investment with. We have about 35k but I don't want to blow through all of that. I want to have some reserves left over. I know the areas aren't the best, I grew up in Brunswick, so I've been in the area my entire life. So right now I'm kind of torn on what to do and where to start.
If you have $35k cash there are much better ways to spend it then buying a dog of a property in the ghetto. That is a hard way to earn money my friend, the risk your taking is just not there.
Simply take your $35k and use it as a down payment on a $140,000 duplex or two $70,000 duplexes. I assure you that is the better path towards success. There is NOTHING in the Cleveland area selling for $10k that I would want to own. Couple years ago, during the crash yes opportunity was there but now all your looking at is scraps.
James,
If I were to take the 35k and invest it in the way you had described with the duplexes how then would I go about building my business after? Unless you are meaning that I still buy a property that needs rehabbed and will appraise higher therefore I can refinance and get cash out? I don't want to lock up all my capital in one or two properties. I would like to grow at a steady rate for as long as possible.
Thanks
You have to park money in this business. End of story. Anyone telling you differently wants you to buy their book or pay for a coaching class of some sort.
Rental properties are about parking excess capital that you need to do something with so that you can achieve the highest possible return on those dollars. The idea that you can take a small chunk of change and use it to quickly grow a rental portfolio that replaces all of your other income sources is pie in the sky my man. You need to let go of that dream today.
I own well over 100 properties and wouldn't want to attempt to live off that cash flow. If you are leveraged on properties it's really not that much money. The real value is that almost every time you buy a rental property you are quadrupling your net worth.
You take your $35k & buy $140,000 worth of property and rent them out. When your mortgage is paid off you now have a $140,000 property but you never paid $140,000 for it. The tenants paid for it for you. This is the core reason you invest in real estate.
Along the way you will get other benefits such as depreciation, market appreciation etc. but do not loose focus on why you should buy real estate. No money down books are not written for any reason other then to make the author money.
Answer this question for me
"If you knew how to make all this rental income without the need for additional capital to invest, why in the world would you tell the general public about it? Wouldn't you simply buy every property in the world?"
Park your $35k into the best possible assets you can. Continue earning income to save up more capital then invest said capital into the best possible assets you can. Keep on repeating.
If you want to speed up the process you need to figure out a way to generate more income now. For me that process involved starting HoltonWise to generate income now. My business partner John & I bought all the property we could with our existing capital and then we had to figure out the answer to this question. "Now what?"
