All Forum Posts by: Rob Gifford

You have to do the math and figure out what your long term ROI is going to be and then discount for risk and the level of effort involved in real estate.

In terms of ROI- the stock market averages around 10%- with possibility for significantly higher returns in the future due to multiple new technology developing that will increase productivity (look what's happening with the NASDAQ recently).

Risk - in this scenario, I'd say the property is more risky than the stock market because you are completely consolidating your capital into one asset. Every investor has stories of running into significant unforeseen issues, having repairs go significantly over budget or having a nightmare tenant. This building may not be one of those lemons but there is a chance. In the stock market you're not exposed in this way as you'll be invested in all the publicly traded companies out there across different sectors, which often move in non-correlated ways. You could de-risk your approach by diversifying and purchases 3-4 smaller properties. 

Level of effort and stress - you have to compare apples to apples in terms of the personal bandwidth each investment is going to take up. There is almost 0 effort in purchasing an index fund and 0 effort in maintaining it for the next 20 years. With real estate, even if you have a great property manager, you will spend time purchasing the property, coordinating construction, responding to issues your PM escalates and organizing your taxes etc...

The main benefit to real estate, when it comes down to it is leverage. If you were financing more you might see a higher ROI (not sure what it looks like at 50%). Additionally, if you have specific plans for how you're going to leverage equity in this property to make more purchases that could be something to think about.

I'm not an expert in Rochester, but this sounds like a pretty good deal. If you could get $1000 per month for the first unit currently with the tenant that's $2000 for the whole property when / if you decide to move out. That seem like an amazing rent to value ratio (2.5%), typical ratios I'm see in the Capital Area around 1-1.5%. 

@Bruce Woodruff has a great idea.

Understanding construction will loosening your dependence from contractors to upkeep or rehab properties and will be a big competitive advantage for you down the road.

@Sean Johnston

I would amplify the word of caution of a the other posters here. Additionally, don't forget you pretty much have to pay the same in maintenance and CapEx no matter how cheap the property. You may cut that down a bit by not having some amenities like dishwashers and washing machines, but you really can't use a percentage based calculation when you get this cheap. Even the most basic units are likely going to run your 100-200 per month/unit in combine maintenance (painting, plumbing fixes) and cap ex (savings towards kitchens, roofs, etc).

Hi Anton! I'm a small time investor based in the Boston area, but investing out of state. I would have loved to house hack if I knew about it when I was younger. At this point in my life, I've chosen to invest out of state- Albany, NY, which is a low appreciation market with great cashflow. If I were in your shoes, though, I'd house hack, at least for a couple years. You'll be able to get a much higher ROI since your'e putting less down and you'll likely be able buy in a better, higher growth area. Providence and Worcester are your best bets as I'm sure you're already thinking of. Another key financial benefits of house hacking are a lower interest rate (investors pay extra points) and the fact you likely won't have to pay taxes on appreciate or profit when you sell the property if you live in it for a certain amount of years.

You've got the recommendation before in this thread, but I use Veno Properties (Ryan Vieneau) and couldn't be happier. 

Hi Gurjot, I'm not the most experienced investor out there but your numbers look a tad bit on the conservative round CapEx and Repairs. I use 8% each, which proves out to be fairly accurate. However, it depends on how old your home is and how hight the rent is in your area. My property is in a lower rent area and is an older, but modernized building. One expense you're missing is agent / PM commission to find tenants.

@Jim Pellerin @Anthony Gayden I'll look into these options. What I'm taking from both your responses is that I may need to think more creatively around financing and partnerships. JV's are an interesting suggestion. I might be able to find a partner to offset my lack of boots on the ground to ensure a rehab goes a bit more successfully. Thank you!

@Rob Ferdinand I live in Boston and invest out of state for this reason. In the past people have invested in Boston for the appreciation and stability. Yes, it’s a market with high demand due to a great economy and lots of student so your vacancy rate will be much lower. Also your maintenance will be lower as a percent of your rents since rents are very high. However Covid has hit Boston really hard and much of our economy is based on people needing to congregate in the city for work or class. I’d imagine the rental market here is going to take a bit more of a beating so I wouldn’t bet on appreciation. Check out Worcester, Southern NH or Providence for a better cash flow.

I've consumed dozens of BiggerPockets podcasts and blog posts and am stumped on a big question: How do I responsibly scale up a passive portfolio to the level that would replace my income. Let me explain my situation: my wife and I, both in our mid-30's, are pretty well paid and motivated professionals but also want the freedom to engage in work on our own terms as we get older. To me that means achieving something like financial independence in about the next decade. 

Last year, I purchased a solid duplex that's cash flowing a healthy $500 after mortgages and expenses- it's going great and now have the confidence to start to scale up. What I can't figure out is, long term, how to get the funds I would need to scale my portfolio to a point that would replace our income in what I think is a pretty generous time horizon (10 yrs). By my calculations at our current cashflow level, we'd need 20 duplexes to pay our expenses (that's living pretty simply with a family in Boston). Each decent (turnkey) duplex in my investment market (Upstate NY) requires about $80K for initial investment (down payment and reserves), which is a lot more than I, or most people I'm guessing, can save in 6 months. I realize I could dip into equity I have, but interest to service that debt wipes out the cashflow. I don't have a construction backgrounds and am investing out of state so rehabs aren't appealing to me. 

When you read or listen to BP, it seems that getting to financial independence isn't all that rare. How are people getting the capital without wiping out their cashflow? What other strategies should I explore that won't be too risky?