All Forum Posts by: Timothy M.

 The OP in this particular example isn't 24, but are you suggesting that someone should be able to turn 1.3MM into "well over 10MM" within six years...?

That's... north of like 40% CoC return. Surely this isn't what you meant.

Absolutely fair - you gotta start somewhere.  For a simple, broad-based index fund, you can certainly do worse than Vanguard's S&P500 index (ticker name: VTSAX). Tons of articles on the web about this, but check out gocurrycracker.com, Mrmoneymustache.com, google around it a bit, etc.

I think for *most* long-term investors, VTSAX is a great starting point. If you want to build a small business on top of this long-term plan, by all means, buy some real estate.

Disclaimer: I personally hold most of my long-term retirement / 401k type investments in a similar fund and invest heavily outside of this fund in real estate to build a lifestyle business independent of long-term savings earmarked for retirement.

@Nadir M. Something happened with the stock market today...?  Why not just put your funds in a broad-based index, stop checking the tickers, and let it ride for 10-20 years? You can spend your extra energy tracking down real estate deals.

This is a very easy math problem.  You want 1k / month, or 12k/year, on 60k invested.  This is a 20% cash-on-cash return.  Can you find properties that return you 20% cash-on-cash reliably?

You won't get cash flow at all - zero, none - if you are looking at A/A- areas in the DMV (read: anywhere in North Arlington, the tony neighborhoods in DC, Bethesda, Rockville, etc.).  If a house in Arlington costs 800k-1MM to buy and rents for 3-5k... there's no way you're going to make cash on that as a rental.

Will it be easy to rent out? Definitely. Will it appreciate? Probably. Will it cash flow when financed at 20%? Absolutely not.

I would encourage you to refine your investing strategy in the DMV; are you really interested only in cash flow? 

Hard dose of reality coming in 3...2...1....

Taking out $200k (just the tuition cost, mind you) to attain a ND degree is borderline insanity. If this is her one and only path to happiness (which I would highly question, unless she has spent considerable time shadowing NDs, spending time in clinics volunteering, has experience in that vein, etc...), then it is necessary for her to realize this dream is not possible right now. 

Put more directly: you two cannot afford that level of debt at this time. Trying to invest in real estate right now would further compound this (IMHO very bad) decision.

Why not... have you and her both save up like crazy for the next 5 years, and once you have more of a cushion, she can revisit the NP route?  If you and she elect to send her to school now, you will literally be paying her student loans for the next 20 years.

Ok, I'll bite.

1000 gross rents

-142 monthly HOA

-34 property tax

-25 insurance

-100 maintenance/capex

-50 vacancy

-0 property management, which you will be doing yourself

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$650/mo, or 7.8k a year, or 5.5% rreturn on your 140k invested... but you will also be doing all of your own showings and dealing with all of your tenants as a part-time property manager, and you're opening yourself up to the prospect of a special assessment wiping out YEARS of profits, all for a return that is strictly less than what an S&P500 index fund would return to you on average.

NB that these numbers are based on an extremely conservative vacancy rate and low low low maintenance figures and an HOA that never increases...

Still a bad deal, IMHO, and I would encourage you to consider other options.

 W/ all due respect, this deal - on its face - seems terrible.   You have accounted for exactly ZERO expenses in your math above...?

Let's say you buy the place in cash AND you act as your own property manager.

You gross 1k on rents. What are your expenses?  Shooting from the hip here, but condo fee (-$100), routine maintenance and capex (-$100 monthly), vacancy (-$50), taxes (-$100), insurance (-$40)... all of a sudden, your $1k rent is returning you like 600 a month, or +/-7k a year, or +/-5% returns.

Oh, AND you can't afford to have a property manager, so you have to do all your own tenant placement and management! And you have to worry about a special assessment absolutely wrecking you.

Ran, just throwing some cold water at you here - on first blush, this looks like it is a very, very bad investment deal.

ETA: this is not directed @Ran specifically, but it appears nobody on this threat has considered any expenses beyond mortgage. 

 Hey John, I'm getting far, far different numbers than you on this. I'd be happy to rejigger some of this if you can show what you're using as your guesses for expenses.

If purchase price is $185k and down payment is 37k, and gross rents are $1775 (which was your upper-bound guess):

$1775 gross rent

- $830 mortgage

- $170 taxes and insurance

- $300 HOA

- $150 Capex/maintenance (super conservatively low number)

- $150 property management

- $50 vacancy (super conservatively low number)

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Thus your BEST case scenario is something like $125/month in cash flow? Ouch. Since you're putting down 37k + something like 3-4k of closing costs, you're somewhere in the 3-4% CoC range. This is bad.

The HOA really kills you here - $300 a month - and unless you expect this property to appreciate wildly, I would absolutely not purchase it. Further to that point, since you're part of the HOA, you're banking on the property appreciating wildly... while also avoiding the special assessment whammy. Seems VERY risky to me. I would not tie 40k of my funds up for this anemic of a return combined with the spectre of special assessment wipeout.

 To be clear, it looks like the SELLER is the one you can't trust; the renter could just be an innocent bystander here.

Something like this:

Seller: "Hey, renter, I have this sweet deal - I'll rent this place to you under market rent with a five year lease."

Renter: "Yeah right, what's the catch? I'll need a lease in writing."

Seller: "Done."

OP: "...What the ffffffffff"

I'm with @Jane S.; the seller did, indeed, "do you a nasty," which is an amazing turn of phrase that I will be stealing right away. Absolutely, you need to walk away from this deal - what was the seller thinking???  What is his POSSIBLE end-game here? Can't wrap my mind around this one.  Walk walk walk.

Here's to all of our deals not doing us a nasty-