All Forum Posts by: Kurt Granroth

Thank you, @Shiloh Lundahl, that is precisely the information I was hoping to get!

If I may aggregate some of these numbers:

Total Price: $767,000
Capital Invested: $92,602
Option From Tenants: $36,500?
Yearly Cash Flow: $21,374
Monthly Cash Flow: $1781

Capital-to-Price Ratio: 12%
Cash on Cash Return: 23%
Total Price to Cash Return: 2.8%

I'm not sure what the "Capital-to-Price Ratio" and "Total Price to Cash Return" would be really called.  Me hand-waving could say that if I bought $1M in properties like this, it would require $120k in capital on my part and I would see cash flow of $28k/year ($2.3k/mo).

I'm not understanding two parts of these, in my extreme naivety regarding RE investing.

First, what does the "Option from Tenant" mean in this context?  I realized that that phrase means nothing to me regarding RE.

Second, is it safe to say that the Bank Loan parts aren't conventional bank loans?  I've read that I should expect to put down 20% to 30% for a conventional loan but nothing has suggested a number as low as 12%.  That implies something very different?

Thanks again!  This is wonderful information.

Hi @Chris Pike

I'm not looking at anything at all, specifically.  I'm in a self-imposed investing moratorium while I learn all I can about real estate investing.  Part of this investing is hopefully learning what kind of returns are available for what types of investing and in which locations.

So every question you are asking is precisely the type of data I was hoping to get from posts to this discussion.  That is, I was hoping that maybe somebody would talk about their multifamily unit in Glendale that they blah blah - every detail they are comfortable sharing and are realizing $350 net flow per unit with a Cash-on-Cash rate of 15.6%. And then somebody else would talk about their sfr in Apache Junction that they did a cash-out refinance with the BRRRR method, are seeing $100/mo net flow and etc etc.

That's the key.  I've been obsessively reading use cases and stories on BP from people around the country, but so far there have been vanishingly few examples of investors here in the valley.  I'm left wondering what people who are investing in Y way are doing here compared to those investing in X way.

@John Casmon - You are absolutely right about the staggeringly high taxes we pay!  I hadn't thought of real estate investing in terms of taxes, though, since my understanding of any tax benefits are limited to deductions on primary home mortgage interest.  What tax benefits are available on multifamily apartments?  That sounds extremely interesting!

I'm likely going to start BRRRR investing next year and since the first 'R' is 'Rehab' and I plan on doing as much of it myself, that does dictate that the properties are also local.

What I'm trying to figure out at this stage is what kind of Cash-on-Cash rate of return can I reasonably expect, if investing in the Phoenix metro area?  The quoted figures I've found elsewhere, referring to more geographically divergent locations, vary so incredibly wildly (3% to 30%!?) that they aren't very useful.

So what I'm hoping to get is some actual real numbers from people who have invested directly in the Phoenix area.  When you run the real numbers at the end of the year, what are you seeing?

And literally any amount of additional detail (actual initial cash, amount financed, location of property, amount required for rehab, etc etc etc) will also be appreciated.

@Scott Krone  Oh, I'm not familiar with investing in real estate in a stock/options market -- my knowledge of investing at that level stops largely at REITs.  REITs are just a little too close to classic mutual funds for my comfort.  I'm approaching investing in real estate almost exclusively from a diversification point of view.  That is, if the stock market tanks again, I'd like to have an alternate source of income that is largely independent of that.  Direct rental properties seem to fit that bill since everybody still needs a place to live and rentals (if not the rates) will tend to increase, if anything.  But like I said, I know essentially nothing about real estate investing via options or puts so don't know how that would play into things!

More food for thought!

@Doug McVinua - Thank you!  Are there many East Valley opportunities?  My assumptions going on (with no facts to back any of them up) was that I might need to concentrate on South Phoenix or some parts of West Valley.  A quick look into Gilbert real estate suggested to me that prices are crazy high, even for the smaller and older properties.  Maybe Mesa?

@Justin Owens - Thank you!  I suppose my view of the Fix/Flip market being super competitive is colored by the mainstream news stories talking about how "hot" the flipping market is in Phoenix, and even seeing TV shows featuring some of the locals.  I got the distinct impression that any reasonably good distressed deal would be snapped up by a pro likely before I would even get a chance to see it.

But my ignorance in this topic is literally boundless at the moment, so I'm very happy to hear that maybe there's more room for the little guy than I thought!

Were your 5 investment properties in the East Valley?

@James C. - thank you for the wonderfully thought-provoking post!  I'll be digesting this for awhile.

The question on whether to use my cash as seed capital vs direct cash is one that will take a lot more reading on my part, plus likely copious amounts of math.  I'm unlikely to convince my wife to allow me to invest more than $250k -- if I leveraged that assuming 25% down, then I have the potential buying power of $1M.  That could open up the possibility of maybe 5-8 homes.  The higher my cash position, the fewer the number of potential homes.  A 100% cash vesting could result in investing in just one home in my local market.  But much higher return on that one home compared to any individual home in a leveraged set.  Lots to think about.

I hadn't considered the option of purchasing performing mortgages. That's... interesting, and so far well out of my sphere of knowledge. Working with a JV or partnership is also mostly just words to me at this very early stage. I was invested in REITs a couple of years ago but wasn't happy with the performance and ended up selling them at a loss for a little tax harvesting.

Anyway, thank you again!  That's all super helpful.

Hey y'all.  I'm Kurt and boy do I understand the phrase "you don't know what you don't know" because, well, I know so vanishingly little about real estate investing that pretty much everything is a recursive "don't know".  Gotta start somewhere, though!

I've lived in Gilbert, AZ (suburb of Phoenix, in its East Valley) for about 20 years and while I've owned a few homes as primary residences (and truly own my current mortgage-free home), I've never really considered investing in real estate in any real way until very recently.

My wife and I are both software engineers and have been blessed with notably high income as a result.  We got enamored by the FI/RE philosophy (Financial Independence / Retire Early) a few years ago and have committed to investing some 75% of our net income into the stock market.  The goal was to get to roughly $1.5M and then retire, since all of the math says that we could safely withdraw (the SWR) 4% of our investment pot every year ($60k a year) and be able to sustain that indefinitely.  We're about 75% of the way there, with $1M already working for us.

But even though the math all works out and all of the simulations I run seem solidly in my favor, I'm still very concerned about having all of my money in a single basket.  Yes, the stocks are thoroughly diversified... but the stock and bond markets still feel like one entity to me.  That's why I (very) recently started eying the possibility of diversifying even more dramatically by also investing in real estate!

I am a pretty handy guy.  I've built an addition to my home (everything but plumbing and concrete-work); a garage (sans concrete); and a home theater (everything).  Plus, I have a DIY YouTube channel ("granworks").  All that to say that it may seem like the Flipping option would be a good fit, since I'm confident I could remodel any part of a house.  But... there are a lot of people flipping homes in the Phoenix area and I'm just not sure I'm aggressive enough to compete in a market like that.

So what I'm mostly eying to start is the Buy-and-Hold model.  Maybe get some mildly distressed properties and then rent them out?

I don't have dreams of riches or anything resembling that.  My tentative goal is to be able to sustainably earn $2k-$5k net a month from whatever real estate investments I have.  So what will it take to do that?  I have no idea.  See above for the "vanishingly little" that I know.  Could I get there by investing just $250k of capital?  Would it take a lot more than that?  I guess I'll find out.

That's where I'm at.  Just starting my real estate journey and learning something literally every day.  Glad to be here to learn from y'all!