All Forum Posts by: Ryan Howell

Nothing wrong with paying them off early, but here is my perspective:

Wealth comes from holding these properties long term.  Cash flow (and equity) is defense to ensure you have a buffer should anything happen.  Here are two scenarios to make my point, assuming I have $100k (easy number, over simplified to make my point) to invest:

Scenario 1:  I could buy 1 $100k property in cash that rents for $1000/mo - cash flow is ~$500 (~50% rule)

Lets assume that property appreciates (long term average) of 3% yoy - total ROI is $500x12=$6000+$3000 appreciation = 9% total ROI

Now,

Scenario 2:  I could buy identical properties with 20% down using the same $100k, but now I have ~$400 mortgage, cash flow is now $100 per property.

Assuming the same long term appreciation of 3% yoy - total ROI is now $100x5x12 = $6000+$3000x5 = $21000 or 21% total ROI

While the example is grossly oversimplified, it highlights the value of leverage because you have more appreciating assets that are growing year over year.  If you pay down the mortgage you are trading that benefit for a guaranteed return of whatever your mortgage rate is (~3-4%?).

My perspective is to focus on acquiring more properties early and then later transition to paying them down, assuming you can maintain adequate reserves, etc as you grow and only buy good deals. If you use the BRRRR method then you can further accelerate the growth.

@John McCurley - can I ask how you have been looking for duplexes and how many offers you've submitted?  

What worked well for me starting out was driving for dollars.  I had a list of probably 50-100 small multifamily properties in my area, looked up the owners and called them.  That also helped build relationships with other landlords.

Another is to get involved in your local REIA. I had success buying from an investor there as well.

@Jake Garrity - Thanks for sharing! Goes to show how forgiving the BRRRR strategy can be. You can have a lot of unexpected things happen and still have a solid investment in the end. Great job.

This is that recession everyone who has been sitting on the sidelines, have been waiting for!

I haven't really had any impact in my rents.  I did have some extended vacancies that were ill timed.  While the news always pitches the extreme version of the situation, reality is, when I talk with other investors or listen to large property managers like Chris Clothier (recently on the podcast) the impact wasn't very large (~8% lost rent, I believe Chris stated on ~6000 units).  

If your first deal is an $80k duplex, its a small enough deal you should be able to pay out of pocket and be okay.  Even if it was completely vacant for 12 months, it would be worth paying out of pocket for expenses for the experience you will learn.  Treat that as your education expense.

Advantages of living there - better terms on your loan and the ability to avoid capital gains if you live at least 2 of the last 5 years prior to the sale, should you decide to sell it.  I would recommend living there (house hacking) to start then moving into your next deal in 1-2 years potentially.

25% looks like a good number. Be sure you're capturing vacancy during the remodel phase. I would say now it comes down to opportunity costs. Can you get better than 25% ROI if you put that money towards something else, such as another property or other investment? To be honest, it sounds like you are fine regardless which direction you go, but that's how I would approach it.

Great job and great write up!

Another question - do you plan to refinance it? If so, also factor in the appreciation. Often if I'm BRRRR'ing, then I'll tend to do updates, but if its seller financed or already on a stable mortgage, then its an investment/return calculation.

@Christopher Bogard - What location in NC are you looking for?  Can you narrow down "multi family"?  Are you looking for small 2-4 units that you can get traditional financing on?  Are you looking to go bigger than that?  I like to recommend starting with your longer term goals and align a RE strategy that best fits your situtation.

Don't use RE as an excuse not to go to college.  I just quit after 10 years in engineering to go full time as an investor and agent and I do not regret my degree at all.  I would not be where I am today if I had not learned critical thinking skills, time management, etc.  

If I were doing it again, I would have gotten a business degree.

I don't think you need to go to college to be successful, but I do think your underlying mindset is what will dictate your success.  There are so many on here that hate their job, and look at RE as a way out.  I believe there are two mindset primarily behind them.  One group just puts in the least effort every day and expects RE to save them.  The other group are the rock stars at their job that work each day to be their best at everything they do, but know they can do more and look to real estate because of the potential it offers.  

Make sure you are in the second group, whether in college or in your job.  I believe the real key to success comes from that underlying mindset and determination that when things are hard, you will work harder to be successful no matter the obstacles.