All Forum Posts by: Justin B.

This is purely opinion but I'd always use leverage. For example, with $100k you can buy a house that cash flows $800/month free and clear. Or you can buy $500k worth of houses (let's assume 20% down) that cash flow $300/month a piece. That same $100k can get you either $800/month or $1,500/month. *AND* you'd most likely pay less taxes on the $1,500/month than you would on the $800/month. Which one would you rather have?

At least that's the way I see it. Of course there are other factors. For those people that stress out about any debt (even good debt), they may much prefer the $800/month method free and clear. All things being equal, I'll do whatever gets me the highest cash flow.

Just look at what you've bought so far. Could you be where you are with the cash flow you have now if you would have bought what you could free and clear? If not, why stop at 5 houses and pay them off? Why not do 5 more houses, then 5 more, then 5 more, etc. Leverage is what grows a portfolio in my opinion. Everyone often has their thoughts around how much leverage to carry. 100% leverage would scare a lot of people here. Not me if the cash flow is right. For me, I typically like to carry between 60-80% leverage. Once I drop to 60%, I refinance and bring it back up to 80% (or higher if the cash flow is right and the bank will let me).

One of the big advantages I see. Value of the property. I have an SFR that I increased rent over $200/month in the past 4 years. We just refinanced it. It came in $5k LESS than the appraisal 4 years ago. I think we got jipped but such is the life in the world of SFR's.

With MF's the value would have risen appropriately with the increase in rent. I like the idea that I have almost complete control over the value of the property with an MF and with an SFR it's completely out of my hands.

How much cash flow per month do you think it could yield for you? I'm averaging ~$325/month per $100k of property bought (all SFR's right now). $100k of my own money can buy me almost $1million in property. So I guess it's closer to $3.3k (than the previous $4k mentioned) that I'd be able to realize. Could $3.3K cover the monthly payments on $100k worth of toys? Most likely. So again, you can have the real estate and the toys :)

I like this one. I've always said, just give me the chance to prove that money can't make me happy :)

I think it depends on the toys. If you have $100k worth of "toys" that you could sell, yea. Based on my track record, $100k would get me ~$4k worth of cash flow per month. You could sell the toys, invest in real estate and turn right around and have it fund the "toys". Then you have real estate AND the toys. And obviously the longer you hold off on the toys, the faster your REI could grow.

Now if you sold all your toys and all you could get is $5k, it won't have as drastic of an effect (if any). If you get a lot of enjoyment from your toys and they just aren't sitting there rotting (like most people's toys do), then it may not be worth it.

I am the same way, although I never bought the "toys" to begin with. I do drive a decent car (although it's been paid off since 2005) but I don't have any other toys. I never bought the boat or the "collection". I stopped buying video games and consoles, etc etc. I'm not the most frugal person (I do enjoy eating out and traveling, etc), but I don't overspend either. With that being said, I do want toys (like a boat), but I've made a deal with myself that they toys will come when real estate is supporting me. Again, I could live barebones and reach my goal faster, but there are certain things I'm not willing to give up along the journey (I live a comfortable live now). I've minimized my expenses to the point I'm comfortable and all excess income goes to my investments. Had I bought all those toys when I was young, I'd have to say yes, I would have sold them and put it towards my investments (especially now that I have a family).

So in taking a break from the seriousness of real estate, what's the worst advice you've ever received (or seen if it wasn't directly to you) and where did you get it? No need to name names unless you are referring to someone who is in the public eye (they wrote a book or something). I expect some of you will think some of the advice you read in this thread isn't the worst (or even bad). Everyone has their own comfort level. I slapped this in the Starting Out section because I feel the people new to real estate would receive the most benefit from a thread like this.

To get you started, here are a few I've seen:
You don't need an entity for your investments, umbrella insurance is all you need - Right here on Bigger Pockets
You don't need umbrella insurance, all you need is an entity (LLC) - Again, here on bigger pockets
Negative cash flow is ok as long as (I'll stop here because I've seen about 10 "as long as" statements :) - Almost everywhere.
Borrow money from a credit card or 401k to fund your real estate - Lots of places (Quick note: In the right circumstances, I don't think this is necessarily bad advice but for the general public, I believe it is).

I have lots more but that should get you started. I'll chime in with more as the thread drives on.

I base my $ off total purchase price. For example, I'm aiming for $300+ per $100k. I don't invest $100k of course (more like $10-15k). So with my math, yes, I would prefer the (4) 50k houses over the (2) 100k houses, because the (2) 100k house don't meet my minimum. Plus, it's always better to have a higher return for the lowest investment.

And cash flow per door might work ok on the big Multi Family's, but not on SFR's.

This is the key right here. Again, check with your state as I think some may have certain laws about how you can use the security deposit regardless of what you have in the lease, but Aly is doing the same thing I do in my leases.

I specify the security deposit cannot be used as rent and I also specify that failure to give appropriate notice (60 days if within the lease and 30 days if they are month to month) they forfeit the security deposit as well. The key thing is they are still responsible for the fee to break early (which is just the equivalent to 2 months rent if in the least and 1 month if month to month), so if they just up and left with no notice and still in the lease, it's 2 months rent + they loose the security deposit on top of that.

The big reason for all this is to protect your stream of income and reduce vacancy. If any tenant could just leave at any time it could take you 2 months to get it rented again and that would be detrimental to your cash flow.

So, if you didn't specify any of this type of stuff in your lease, you're definitely under the state laws for how the security deposit is handled. Typically, you can NOT use it for rent, fees, or withhold it for anything other than damages that need to be fixed above and beyond normal wear and tear and it must be returned promptly after move out (like a week or 2 in most states).

One thing you can do if none of that is in your lease is get your tenant to agree to let you keep the deposit to cover rent/fees (in writing), but if the tenant is smart they probably won't agree to that and if you do get it, just be prepared for that to be all you'll get and just move on.

I owe my start to that book. Since then I've read about 100 other business, financial, real estate, etc books from all kinds of differing authors (probably 30 or more in all) and talked with others, read blogs, websites, and joined BP. There should never be a single book (or resource) that one follows. I don't think there is a single book that I haven't disagreed with some advice somewhere in it. This includes RDPD.

What you have to realize is that just by being on this forum, you probably have more "common sense" about money and business than most people. I remember when I read RDPD about 10-12 years ago, I had the same level of education as probably 95% of the population. The only thing I had ever been taught was go to school, get a job, and work until your 65 and then retire and hopefully you're not too old to enjoy it. All the adults in my life (parents, cousins, aunt/uncle's, grandparents, friend's parents, etc) ALL followed that path. I didn't have a "Rich Dad". so when I read RDPD it was a HUGE eye opener for me. It's written for people with the education I had. If I were to re-read it again, I would probably have the attitude of it being common sense and I wouldn't learn much from it at this stage, but the reason why it's recommended so much is because the way of thinking he puts forth in that book is different than everything most people have been taught. If you are already a business person or investing in real estate, RDPD probably won't have an impact on you, so don't downplay a book just because you know everything that's already in it. I've run across books that after I read them, I said well that was a waste of time. Not because it was bad but because I've read 20 other books like it and I learned nothing new. but that doesn't make it a bad book. I know some of his advice in there is questionable, but the overall message is still valuable. Again, I've taken everything I've learned from RDPD plus everything else I've read and combined it to figure out what is good advice vs bad advice for me.

Now here's the kicker. Without the people who go to school, get a good job, work until their 65, and then retire, the businesses that we all know and love couldn't exist. If 50% of the world were "entrepreneurs", then the whole system would fall apart. The world can only have so many "Rich Dad's". All the rest of the people need to be the "rat race" people so the system works. I need someone to eventually do all the jobs I don't want to. I need a lawyer, an accountant, a contractor, etc etc. So even though the book is written for "everyone" very few will actually do it like I did. In about 5-10 years, I should be at a place where if I wanted to, I could play golf every day and check in about once a month and never have to worry about money again. I know a lot of you are there now. I love real estate so I don't know if I'll ever "retire" but I will have absolute freedom and the choice that everyone else with a 9-5 won't have. So I owe the actual "kick in the butt" to RDPD. It's what started this journey I'm on now.

I'd actually like to hear a critique of RDPD from someone like me 10 years ago (someone who owns no real estate, has never thought about owning any and who has a 9-5 with a 401k and hasn't seriously thought about owning their own business). Everyone who I've heard say something negative about it already has the financial education for the RDPD book to not be valuable to them.