All Forum Posts by: Timothy M.

@Doug Shapiro

Someone else on here said it best like a week or two ago.  Real estate involves, at best, sixth grade math: addition, subtraction, and sometimes long division.  

You're looking to return 36k on a 300k investment - this pencils out to a 12% return on your investment.  You've also stated that you want relatively-turnkey (that is how I interpret the phrase "I don't want to do any major remodeling work").  I don't think that a 12% cash-on-cash return deal would be particularly difficult in today's market, provided that you are focusing on rental returns and not, say, a speculative play in a high-appreciation, low-return market like San Fran, DC, or NY.  If I were you and had those goals, I'd take your $300k, lever up a bit, and buy some B-C grade rentals or a larger complex in any number of Midwestern or rust-belt markets (Indianapolis, Cincinnati, Pittsburgh, or Detroit come to mind as off-the-cuff options).

I think you'll find that 12% CoC is eminently reasonable as a goal and won't require you to go off the rails with something super risky. Best of luck in 2019!!

(source: have some [arbitrarily graded] B-to-C grade rentals in similar markets and am achieving long-term returns right around where you're looking)

@Russell Brazil's opinions on this market are pretty well-known at this point, but I have a few moderately successful MF units in Hagerstown. When managed closely, I'm averaging long-term low double-digit CoC returns (probably in the 11-12% range). To put that in context, I've put down 25% on what are probably class C multis; little in the way of appreciation, but they throw off dough like crazy. If you figure in principal paydown, IRR will settle somewhere in the 15% range, if I had to make a WAG.

Additionally, I figure a very conservatively-high estimate for eventual CapEx expenditures. For me, the secret has been keeping rents at or sliiiiiightly below market rates, which has kept vacancy and turnover to a minimum.

Eventually going to sell out, though, and scale up into something much larger in an area with some larger appreciation upside.

@Collin Schwartz Hey man, thanks for replying.  As a fairly-newish-to-the-game investor around your age, I appreciate the candor.  So to make sure I'm understanding this right...

If we put aside the decent salary from the PM business (and again, congrats on creating a successful business!), I'm still having trouble understanding how the numbers work here.  

Assuming a very conservative valuation of 60k per property (I think upstream you said they were closer to 90k or something?), your 60 units of ownership conservatively translates to somewhere around 3.5MM gross. That would mean your equity stake in that portion of the portfolio needs to be at least around 20% of that to actually get loans, right?  Sooooo... conservatively, call it 750k in equity.

I'm still 100% lost how it is possible - within the span of less than a year and a half - to turn 200k into 750k in equity, unless your portion is levered out the ying-yang.  E.g., you are capitalized at something like 250k and somehow got loans on the other 3.2-3.4MM 

For ease of the maths: If at the start you were to take your 200k and put down payments on 1MM worth of property (assuming zero closing costs, prepaid escrows, etc.)... you're tapped out. Unless you somehow manage to increase the ARV of the properties by like 50% each, within a month of purchase or something, and then instantly refinance and move on to the next one, which also appraises 50% higher than purchase almost instantaneously, allowing you to keep the refinance-out train chugging along, I just don't see how this pencils out.

Can someone who has a better eye for these things spell this out for me?  Genuinely trying to learn here.

Can someone explain this to me like I'm five?  I've read through the entire thread and - no snark here whatsoever - I'm not sure what we're celebrating.  @Collin Schwartz you certainly don't need to get into the numbers here if you don't want to, but it might really help explain some of the capitalization issues raised earlier in the thread.

Here's my read: the OP left his day-job to take a different day-job (started a company doing PM work) and took some 200k of seed money from a HELOC to begin investing in SFRs and multi-families and reposition them. At some point, OP found outside investors/partners/HML and expanded his portfolio with said partners. The whole portfolio is now worth some 8MM. Unless I missed something, OP did not give any indication of how much his ownership stake of the 8MM works out to, nor did he give any indication what is his monthly take (read: profit) from the portfolio's rents.

I think it would be prudent to probably treat this as two separate issues.  One, the OP started a successful PM company (congrats, btw!).  Two, the OP now has some ownership stake in a 92 unit portfolio and shares the remainder with investors.  Putting aside the first issue for a second...

Zero snark here: what exactly are there 12 pages of congratulations for?  Changing jobs to become a PM, partnering up with other people to buy a lot of units together, something else entirely?  Please help me understand.

Mike, I'm a little lost.  Earlier upstream you've made the claim that it takes an investor today some 1k+ hours to "buy the market" that would have cost his father 250 hours to purchase (based on inflation-adjusted hourly wages, presumably).  Later in the thread you complain that the markets aren't even comprised of the same goods (read: constituent companies), and it would be like your comparing "House A to House B."

So by your own admission, the basis for this whole hours/time comparison is essentially meaningless? Am I missing something here?

Separate bone of contention: the 30 constituents of the DJIA averaged something like 9% growth (without dividends) between 1971-2018.  (which accounts for the DJIA value increasing some 30 fold on that same period).  Is your contention, then, that salaries should grow at the same average rate as equities markets?  This does not make any sense at all from an economics perspective.  Why should your labor increase in value at the same rate as corporate value / earnings?

I understand that you support purchasing real estate as an investment, but cherry-picking home-run examples ("I bought a house and made 50k in a year!") is not the most convincing argument to be made, IMHO.  If you'd invested 1k in AAPL stock at the IPO you'd have something like half a million today.  OR you could have bought bitcoin 7 or 8 years ago... etc.

 Mike, please help me understand what your actual numbers are.  The numbers I posted are not theoretical - the Dow was factually at +/- 5500 in early 1971, and I used average inflation numbers to calculate the salary in 1971 that would be equivalent to $26/hr in 2018.

From there, it was a simple mathematical jump to compare *time*.  The way I have it calculated, the "hours to buy the market" is much closer to 1000 than your graph shows (I think you quoted +/- 250 originally).  If you have numbers for "hourly salary" and "total worth of the Dow" from 1971 that differ drastically from $5.86 and 5550, respectively, I'll gladly recalculate.

Putting aside for one second that comparing a single property to the overall US stock market is, indeed, a somewhat vacuous comparison... your "hours to buy the stock market" theory misses the mark (widely) because you haven't accounted for inflation.  

Walk with me here as I show the maths.  The quoted $26/hr average wage in 2018 - if we account for historic 3.22% inflation - was worth what, exactly, in 1971?

$5.86 an hour.

(to work backwards... in 1971 the wage of $5.86 x 1.0322^47 = $26 today)

Now, if the average wage in 1971 was $5.86/hr, and the average "cost of the market" was $5553 in early 1971, it would have taken my dad 947 hours to "buy the market."  This is not 250 hours, and I don't know where you achieved that number.

TL;DR: I don't know about that chart you posted and the numbers are very dubious.  It appears you (or the chart's creator) didn't account for inflation.  Comparing a single family rental purchase to the DOW is an apples-to-oranges comparison.  Buy both stocks and RE.

Huge congrats, David - numbers look great on this project.  What does that take your monthly net up to, has to be north of 10k a month at this point, no?

I'm having a hard time understanding the numbers here - you made $200k gross over that period (call it 40k a year for 5 years).  Assuming you ate nothing and paid 0 taxes, you turned 200k into 500k in 5 years??  What am I doing wrong??

You mentioned that most of the NW gain has been in equity.  Does this mean that you bought a house for - I'm making up numbers here - 200k, and the house appreciated to 300k in a 5 year period, and you did some variation of this multiple times?

Can someone explain this to me like I'm five, please...?