All Forum Posts by: JM Edward

Quote from @JD Martin:

 You're welcome. These guys know their stuff so you're getting good advice. You should always start with the end goal in mind. If your end goal is a very large amount of wealth, and you have the time to achieve it (ie you're not 70 or 80 years old starting out), the more velocity in your money the greater your chances of achieving your goal (but of course fast moving money can also be lost quickly if you're not careful). The slow way is sinking all your cash into a property and waiting. With a good property, in a reasonable area, you won't lose. Your return will be diminished compared to dividing that money up into 3 or 5 or 50 properties, because the velocity of your money will have slowed to a crawl. But you will be unlikely to lose your original investment, given enough time. Your return is lower because your risk is lower. Always remember that return is directly proportional to risk. You make higher returns when you take more risk. There's exceptions but they are rare, because if they weren't rare everyone would do them. So buying a solid house in a great neighborhood as a rental for all cash is extremely low risk. Buying a $10k house in a ghetto area is extremely high risk. If you get it rented your return is going to be phenomenal, but you may also end up with squatters or someone burning the house down or lots of other things that make it more risky. 

Thanks again JD, that seems like a good summary of some of the points that have been raised here.

It occurs to me that the words "all cash" have grabbed everyone's focus and one point is lost:

The question was intended to address concerns on holding costs for a first-time project. **They did NOT preclude pulling that cash back out after the rehab**

Is there any reason why buying all cash on a project would prevent someone from trading in that equity for cash on the back end in order to fund a second project? Are there no bank loans available like that? Is the only option a HLOC which may be inferior to a traditional refi?

@Joe Villeneuve

> "Buying equity isn't a gain. All you're doing is transferring cash from your bank to the property. It's the same cash, just in a different form. That's not profit. Cash flow is the way you recover your cost"

Right -- there is no claim equity is profit. But you are calling it a cost. I said it's a matter of perspective because, as you said, it's the same cash in a different place. To me, it's still my money, moved into a different form (albeit with slightly more risk). That's not a cost per se (though I do understand why you treat it as such).

That's the reason it's instantly returning a profit -- because instead of my money sitting in a money market account earning 4%, it is in a property earning whatever cash flow that provides.

> "Saying you have more cash flow because you paid all cash is just bad math"

I said this because in the simple scenario, having no interest payments to a bank, all the tenant payments are yours, of course excluding other costs that are the same either way.

I'm not sure, but my guess is that the math you are referring to is that having leverage allows investment into higher value properties (or more of them) that will obviously flow more cash? I certainly don't dispute that leverage provides more cash flow because you are earning interest on someone else's money; the original question was just meant to be the simple context of a first time purchase that does not preclude using leverage at its completion.

> "I don't see the connection between buying all cash and gaining more time to learn."

The question was purely meant to address concerns about holding costs which might be more painful for a newbie who could end up taking much longer to complete their first project. Naturally, there are other costs that can't be avoided, but is there no sense in the idea of avoiding loan payments in that scenario?

I take your opinion on that particular question to be that for you, the risks of holding longer are more dangerous than the pain of eating more interest payments, so you'd reduce the invested risk just the same as if it was your 100th flip.

The other compelling argument against the idea in the OP is that for a newbie, having the bank as an extra set of eyes on the project feasibility is quite possibly worth any extra costs (Thanks @JD Martin

Thanks for your offer to explain over DM; I like fleshing it out in public to see everyone's feedback, but I will send you a message in case we still are talking past one another. I certainly have a deep appreciation for your willingness to engage with me!

Quote from @Joe Villeneuve:

Quote from @JM Edward:

Thank you to everyone engaging this topic. It has been very educational for me. I'm the OP but life pulled me away, so pardon a late response:

@Joe Villeneuve in regard to time-to-profit being much shorter when you have less cash invested, this is an insightful point, but it seems you'd have to be fair here and account for the fact that possessing a real estate asset free and clear is not generally considered a position in the red. You're instantly making profit and not paying interest to the bank. Ideally, you're doing better than you would in a money market investment or a real estate fund where your money is tied up just the same. I think your point is more that you can't scale and can't make extra money off of someone else's money.

Instant profit where when you buy all cash?
In a positive CF property, the tenant is paying the interest.
When you pay all cash, that IS a negative.  The cash you put into a deal, or any business, is your cost.  When you put little cash in (DP), and the tenant's rent covers the rest, your only cost is the DP.  In any business, profits only come after you recover you cost...which in this case is the cash you put in.  The more cash you put in, the higher the cost, and the longer it takes to recover it and make a profit.

Joe, I understand your point and don't completely disagree; I think it's a matter of perspective, but I think you are overlooking the fact that if you buy all-cash, you also have a strong equity position in your portfolio that you otherwise don't have, and you also pocket more of the rent. Cash in the bank might be more valuable to you than equity, I don't think that's worth arguing very much.

I was more hoping you'd talk about the other questions I was asking toward you? What are your favorite non-traditional financing avenues? Why did you conversely agree with someone that holding $24M in debt was more than you think is good when one would assume that means they've been using leverage to build a large portfolio with much cash flow?

@Marcus Auerbach "Agree, that's what I meant by stabilizing the portfolio - grow it and give it a few years"

So as a newbie I'm confused if you agree with @Greg Scott how you propose no landlording is involved. Would you be able to give a more detailed example of the kind of approach you are advocating? (and how it is tax free?)

Quote from @Drew Sygit:

You may want to read these threads BEFORE jumping in!

https://www.biggerpockets.com/forums/48/topics/1182559-rad-d...

https://www.biggerpockets.com/forums/104/topics/1226993-crew...

Terrifying. Are you aware of any consensus on whether or not there were any vetting signals that investors could have caught that would/should have scared them off from ever investing in these failures?

@Chris Seveney "There is a whole category here on BP for syndications and passive real estaet as well as passive pockets"

Asking again since maybe you missed it, but I can't find that category -- can you point me to it?

Quote from @Laura Navaquin:

JM, 

I love that you’re being intentional and thoughtful about your next move. It sounds like you’re in a season of life where time is your most valuable resource (I can relate!), and private real estate funds can absolutely be a great way to stay in the game without the heavy lift of hands-on projects.

You’re right, those double-digit, quick-turnaround returns from flips can be amazing, but they also come with time, risk, and a learning curve that not everyone has the bandwidth for, especially if you’re juggling other passions and projects. I’ve personally done both: active investing with flips and BRRRRs, and more passive investing through funds and partnerships. Each has its place.

If you’re not looking to get your hands dirty (literally and figuratively) and would prefer a more passive route while still building wealth through real estate, a well-vetted fund with a solid track record might be a smart entry point. Just make sure to dig into their underwriting, past performance, operator experience, and alignment of interest (how they make money vs. how you do).

There’s no one-size-fits-all, and I actually love helping people navigate these kinds of questions! Real estate should support your lifestyle, not take over it. 

Looking forward to seeing how your journey unfolds!

Thank you, Laura. Might you have advice you feel is most important for vetting funds and their managers? Or favorite places to read about doing so?

@Jamie Dietz "Instead of locking up funds for 2-5 years in a fund there many other ways to invest and learn. You can partner as LP or in JV in deal or become a private lender in short term note like I did"

Thank you for this, Jamie. I'd like to learn more about those other options. Would you be able to point me toward where to educate myself about them?

A frequent contributor here recently posted that:

"When you have a dozens of properties, it's more of a constant headache.... Fun would be selling everything, place the 8 figure proceeds in t-bills and bonds and relax. However, the downside would be a massive tax bill and me being bored"

As someone who has a full calendar and lots of personal interests and fun projects and travel I enjoy in my life, that kind of comment scares me as I consider if I want to invest into a flip or a BRRRR, etc.

For those of you who have family, friends, activities, jobs, and other passions that fill up your life, how do you balance active real estate investing? Do you have a number of properties you think is a limit in terms of what is feasible to manage? Do you find PM companies and other strategies helpful to mitigate this problem without being too much financial drain and not screwing things up for you?

Is limiting yourself to flipping and not holding properties a strategy that helps avoid these headaches?

Thank you to everyone engaging this topic. It has been very educational for me. I'm the OP but life pulled me away, so pardon a late response:

@Joe Villeneuve in regard to time-to-profit being much shorter when you have less cash invested, this is an insightful point, but it seems you'd have to be fair here and account for the fact that possessing a real estate asset free and clear is not generally considered a position in the red. You're instantly making profit and not paying interest to the bank. Ideally, you're doing better than you would in a money market investment or a real estate fund where your money is tied up just the same. I think your point is more that you can't scale and can't make extra money off of someone else's money.

But more central to the point of this thread: I didn't mean to advocate against refinance on the back end once you've learned the ropes: buy all cash, then take a loan on the equity you have to launch your next project. I see the immense value of leverage but was thinking about the very first time and how having more time to learn the process might be good, thus considering if all-cash would make holding it longer cheaper/easier until the first loan on the back end of the project.

> There are many more ways to finance properties, not involving traditional financing

Can you enumerate some? I would assume they are much more costly?

Then you said this:

> > I had over 24 million in loans outstanding
> That's a lot of debt. I'd be working to eliminate that much too, one way or another.

As I understand it, you are advocating for using leverage to scale. More debt (hopefully) means one is earning cash flow on all that $24M while having invested a fraction thereof. Why wouldn't you celebrate someone working their way to that level? Where do you draw the line for yourself in "too much debt?"