All Forum Posts by: Jon Schwartz

Jon Schwartz has started 37 posts and replied 926 times.

Originally posted by @Rudy Avila:

@Jon Schwartz I didnt mean it in a bad way ma boi lol its expensive out here in LA. Im in the same boat. But I dont count your principal paydown out of your monthly expenditure. To me your paying $4,112 a month to live in that property. To me your last month using your numbers your increase networth is $2,840. Hey its still good not saying its not, im not calculating my principal paydown in my cashflow.

Cool, man! I'm sorry I read your "LOL" in a mean way. That's on me -- I'm kinda a cynic. I'm from DC on the east coast; people aren't as nice there!

Seriously, good luck with your empire. It sounds like you have a number of plates spinning, which is impressive and admirable. We should get a beer when COVID ends and I'm visiting El Monte every weekend!

0 Votes

Originally posted by @Rudy Avila:

@Michael A DeAngelo Sup I have a family so If I house hack it would have to be a duplex minimum. Ask Jon if hes living at his duplex cheaply or free lol

LOL?

Here are my actual numbers from last month for my duplex:

PITI: $9000 (and that includes earthquake insurance)
Renter's Utilities: $87
Rental Income: $4975
Principal Paydown: $2160

So I'm living in a 1600 square-foot 3/3 in Hancock Park, one of LA's most expensive neighborhoods, for net $1952/month.

And that's not including appreciation. If we assume something really small, like 3% longterm appreciation, that adds $5000 to my net worth last month.

But enjoy your cashflow, my friend!

1 Vote

Originally posted by @Rudy Avila:

@Jon Schwartz I love El Monte man born and raised here they say, I feel i never want to move out of this city. But ill move around within the city to change the location.. If you ever want a tour hit me up. Now I love it here but I dont know if ill always want to stay here. I also love some of the surrounding citys that i would love to live in too. Arcadia, Bradbury, Monrovia, Duarte, Covina, Glendora, San Gabriel, Temple City, I would love to live there too one day maybe. I own a Tire shop in Baldwin Park, so I got live live close by say 20 min drive or less. Or maybe one day ill be like screw it, I already making over 100k in passive income, I dont got to live close by cause I can have someone run the shop because i dont need that income no more ill move to Riverside county! Cheaper rent out there, I like it out there more land so i can work on some kind of auto biz because I want to not because I have to... Renting give me that flexibility.

They way i look at appreciation is i look at it as a Bonus, not as my my squeeze they say. So If buy your average house now at 550k in El Monte, or Duplex even more, in 2020 when properties are at low supply high demand, and theres buyer bids on every house pretty much, Im going to get a high price on whatever property it is, most likely over the asking price. Next year property prices will begin to come down in this area. By 8/20/2021, Do you think this property will be worth more or less? what about 2022? 2023? The property will be worth less by then. Now I agree since your holding long term it will bounce back in value but say in 7 years do you think the value will be back what I would pay for it? Maybe. Right now all we have seen is increase in value every year for 10 years, thats not the case today moving foward. So the way I see Appreciation is if I get it Great, If I dont it dont matter because im going to make Cashflow from it every month. By the way Riverside county where my propertys are at, it Appreciates and will continue to Out Appreciate over El Montes Appreciation % per year if we compare apples to apples. It was the number 1 county in appreciation in the state.

Cashflow. Robert Kiyosaki says you should pay your small Debt and your big Debt someone else should pay for it. If i buy a home here im going to pay for it. If I were to buy a property here in El Monte do you think I would have positive cashflow or negative cashflow every month? with me in it or not. For every rental property I buy out there I am getting very high cashflow, so much that with just one stream out from out there can pay for my rent out here, not one property, im talking about one unit! Not to mention the other units in the same property.

In this very expensive market where im at, running the numbers which is the most important, it is far better for me to rent and continue to raise my passive cashflow. I only give a $800 deposit and $800 per month and thats it (for my end). 2 bed 2 bath here in the city average in my area is $1600 a month. When things break here I dont got to fix it, landlord does, about a year ago there was a main drain issue of the property over 3k in repairs. I paid zero. It was a very old system from the 50s that finally gave out. My money goes to savings and investing.

Rudy, renting offers the huge advantage of convenience, no question!

Renting and owning cashflowing properties is a great way to keep the month-to-month even. But where are you building equity? How significantly has your net worth grown over the last couple of years?

To answer a specific question: I think properties will be worth less in one year than they are today. But as you pointed out, I'm looking at a longer investment horizon, so I'm okay with that.

My main argument is that it's flatly wrong to look at appreciation as a bonus. Robert Kiyosaki made some excellent points in his book, but his book is far from gospel. We live in a high-rent, high-appreciation market. Most people on Bigger Pockets don't. We shouldn't take the general wisdom of BP and follow it blindly given our unique circumstances.

1 Vote

Originally posted by @Adrian Beltran:

Just wanted to see if anyone is investing in the Calumet City or Dolton Illinois area. Wanted to see what the market is like and if anyone has any tips on the area. Also if Illinois more of a landlord friendly state or not. Any advice will help I'm a newbie and am looking for a good out of state market. I live in Orange County California which is a pretty expensive area for rentals.

Adrian, Calumet and Dolton are both in Cook County, which has had a declining population since 2000.

There's a reason real estate doesn't appreciate in some areas!

Best,

Jon

1 Vote

Originally posted by @Chris Olson:

My wife and I have been lurking the BP forums, listening to the podcast daily and are very eager to dive into our real estate investing journey. Being based in Los Angeles can make things seem a little daunting.

In the past, we've bought a condo and a single family home out here in LA using traditional financing. We are now looking into hard money lending for our next and future deals. Looking for any recommendations, insight or advice anyone can offer.

Thank you!

Chris, fellow investor and video editor here. I have some recommendations! I'm going to PM you.

Best,

Jon

0 Votes

Originally posted by @Etienne Dubois:

If money was not an issue and i had 100,000 USD on the side to put for down payments, would investing in expensive cities like los angeles be a good idea because of the rental occupancy rate there, or would it be wiser to invest it in somewhere that has a lower occupancy rate but i can buy more with 100,000 in down payments.

Etienne, I'd invest for appreciation in a market like Los Angeles. If money's not an issue at present, and you want your money put to best use, invest in a place like LA (and I vote specifically for LA).

Let's just do some quick math:

Let's say $100K is going to be 25% down payment on one or several properties. In your appreciation market, you'll receive no cashflow, but the building will appreciate 5% per year. In the cashflow market, you'll earn a fantastic 15% cash-on-cash return but no appreciation. All financing terms are identical. Let's remove costs associated by buying and selling. To further simplify, let's say there's no principal paydown (since it will be equivalent in both examples).

What's your investment horizon? Let's say seven years...

In seven years, in your appreciation market, you'll own a property worth $562,840. You borrowed $300k to buy it, so you profit in year 7 is $262,840.

In the cashflow market, after seven years, you will have made $105,000 in cashflow. You'll have no profit in the sale of the building because it didn't appreciate.

Now, cashflow-lovers are going to make the following argument: cashflow is money-in-hand whereas appreciation is speculative.

They would be right that cashflow is money-in-hand in that you get it regularly, not as a big lump sum at the end. This makes the early cashflow payments more valuable than the later appreciation harvesting. However, if money is not a current concern, as is the case in this example, the actual value of those earlier payments is lower. To be really nerdy and mathy about it, you can use a much lower discount rate when analyzing the value of future earnings.

However, is appreciation speculative? In the Midwest, yes. In cities that have populations under 1M and might or might not be ascendant, absolutely. But in an international gateway city with a longterm average appreciation rate of 6.7% going back to 1975 -- meaning this longterm average incorporates the five recessions that have occurred since? Appreciation is far less speculative than Midwestern investors make it out to be, and to the extent that it is more speculative, the reward is much greater.

So, buy LA, my friend!

Best,

Jon

24 Votes

Originally posted by @Jimmy Chao:

I live in California and currently rent. I am considering whether to buy my first home or continue buying properties. Rent has been increasing as such a fast rate that i'd rather be spending on a mortgage than this. For those that dealt with this dilemma, what was your decision and reasoning?

Jimmy, welcome to the party!

This advice is for you and @Rudy Aliva, too!

I think you should do both: buy and move into a duplex, triplex, or fourplex.

As an owner-occupant, you can put very little down with an FHA loan. You'll also get the best rate available.

More importantly, though, it's difficult to wrap one's head around how powerful the equity build is thanks to principal paydown and appreciation. It's like utilizing two kinds of leverage: you have leverage in the financing, and then you have further leverage in the rental income you collect.

I'm househacking a duplex in Hancock Park right now. Now, my numbers are kinda big, but the same principles apply at any price point: I paid $1.85M, did some renovation, and appraised at $2M during a recent refi. However, because of the rent I collect, my PITI payment is the equivalent of living in a $1.2M home. LA's longterm property appreciation rate is a little north of 6.5%, but let's use 4% for this example. A $1.2M home should appreciate about $48K in that first year of ownership, whereas a $2M duplex should appreciate about $80K. And because appreciation compounds, the gap grows even more over time.

PLUS, the principal paydown every month is huge. I just started year two of ownership, and the principal paydown accounts for almost half of my monthly out-of-pocket. It's crazy.

So I say buy and move into a multifamily! Cashflow is fantastic in general, but if you don't need it right now (ie, you have income from a job or career), you'll do much better in the long run with sweet, sweet LA appreciation.

And Rudy -- I got my eye on El Monte! I think there's opportunity there.

2 Votes

Originally posted by @Scott Johnson:

@Jon Schwartz

It’s important to remember “trickle down economics.”

1) They start by taxing the wealthy

2) The money comes in

3) The wealthy find a way to avoid the tax

4) The government still needs that money

5) They pass it in to the poor and middle class

Just because they’re not raising property taxes now, doesn’t mean they won’t when they get used to, and stop receiving, their money.

Scott, I gotta tell ya, it's easy to make a slippery slope argument in opposition to any position.

The purpose of government is determine where on the left/right, liberal/conservative, libertarianism/socialism spectrum we actually land.

You can't argue against taxes with the simple argument that taxes will never stop, just as you can't argue against, I dunno, gun rights by saying that gun-owners will soon be driving tanks through downtown.

0 Votes

Originally posted by @Anthony Morvillo:

My wife and I are contemplating doing a house hack. Here is the scenario. We live in a 3 bed 2.5 bad home that’s way too big for use. We found a home with a basement suite and a detached garage with a small 1 bed 1 bath apartment. We would live for free but I’m worried we would be too uncomfortable.

Has anyone done this and seen the power of house hacking? What would you recommend?

Anthony,

Househacking is crazy powerful. I sold my wife on househacking by making a spreadsheet showing her how quickly our equity in the property rose relatively to how slowly our out-of-pocket moved.

That said, you don't want to compromise your life too much in the pursuit of financial freedom. We househacked a duplex with two 3/2 units. AND, we renovated the whole building, including adding a third bathroom to our unit. The reno will pay for itself eventually; 3/3's aren't common on this block, and it'll pull a premium when we eventually move out.

I'd recommend you compromise with a duplex.

Good luck!

Jon

0 Votes

Originally posted by @Mike Franco:

I need a strategy.

I'm retired, but never got into the BRRRR. I have $1M cash and $1.5M in paid off real estate assets, no debt, and no 'real' income. 830 FICO.

I want to leverage my assets and start BRRRR to secure retirement for the kids, getting the ball rolling so they can have paid off properties by the time they retire.

$1m cash isn't really enough to buy many cheap properties in Socal. So I want to use the bank's money as much as possible.

How do I get the ball rolling fast?

I don't understand how the numbers work for subsequent BRRRR properties without much income. Hear me out...

I buy a $300k house cash. $50k rehab. $500k ARV. Rent in Socal is ~5% cap rate, so $2100/month gross rent.

I'm down $350k already, and I need to replenish the $350k.

Will the bank really lend me $350k cash out refi 70% LTV with only $25k gross rent as the only source of income? How do you even fund subsequent BRRRR properties with bank money in my situation?

I have enough assets and want to use the bank's money at the lowest interest rate possible to grow a BRRRR portfolio as quickly as possible.

What realistic timeline am I looking at here?

I'm hoping to acquire 10 BRRRR houses that are $500k ARV, which I expect will all be worth $750k after 30 years, for a total holding of $7.5M at the end of 30 years, which the kids can sell and retire off of.

Mike,

Care to adopt an adult?

Just kidding. Seriously, though, what a great plan. You've got some lucky kids.

If I were you, I'd call a loan broker or two, explain the scenario, and see what they say. The only hiccup is that you don't have current income, right?

Can your paid-off real estate serve as additional collateral? Maybe you should also call some local credit unions; they might be game for a scenario like this.

Good luck!

Jon

1 Vote

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All Forum Posts by: Jon Schwartz

Jon Schwartz has started 37 posts and replied 926 times.

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