Posted by Wayne-NC on March 11, 2008 at 07:49:05:
Right…on both accounts!
show me the money - Posted by Bob
Posted by Bob on March 09, 2008 at 11:11:33:
OK gang - I have been an avid reader and sometime poster (I have been in the rug cleaing biz for 20yrs so I answer those types of posts when I can). I have finally jumped in! I got a partner and we bought 2 minor re-habs - one is done and for sale the other is almost done. I can see making some good money from these. I am also in the process of wholesaling 2 deals (boy is that fun!). So here is my question - How do I go down the rite path to true financial freedom from here? I want to start looking at the end now instead of wandering around. I am talking about the life that puts my kids through school and lets us travel and live the “good life”. I know this is a general question but worth an answer.
Thanks,
Bob
Re: show me the money - Posted by Natalie-VA
Posted by Natalie-VA on March 10, 2008 at 10:47:50:
Bob,
Good post. I think the biggest message here is to live well within your means regardless of how you earn your money. Landlording is not for everyone. You don’t need to be a buy and hold investor to achieve financial freedom. Also, I believe in paying down debts and mortages. Most people would prefer to keep some debt as leverage, but your net worth really starts to snowball when you have no bills to pay. Lastly, the RV purchase sounds fun, but not prudent IMO. You can take the family on that trip in a rental instead of buying a huge depreciating asset.
–Natalie
Re: show me the money - Posted by DJ-nyc
Posted by DJ-nyc on March 10, 2008 at 10:08:44:
This thread reminds me of reading “The Millionaire Next Door” by Stanley and Danko.
Changed my thinking completely…
DJ-nyc
Re: show me the money - Posted by Bob
Posted by Bob on March 09, 2008 at 17:24:10:
Great answers! BTW - my truck - 2000 Chevy with 125K on it and I love it! My idea of the good life - being able to fish when I want - where I want! I was lucky enough as a young lad (turned 48 yesterday) to work for an oil exploration company and travel the world. I would love to have my kids see some of what I have seen. I am frugal and don’t get off spending $500 a night on a fancy hotel! I want to see a RV in my future so I can load the family up and go (kids are 8,10 and 13). It would be nice not to have to worry about the price of fuel as we tool around the USofA. I have lots of family in Scotland and England so a trip would be great. I guess thats what I mean about “the good life” - then not worrying about retirement travels. This is what I want out of RE - I am going to assume that lots of others feel the same way. Keep those answers coming - not just for me but for all of us!
Bob
Re: show me the money - Posted by Jimmy
Posted by Jimmy on March 09, 2008 at 14:13:01:
-
get rid of the partner.
-
the best way to get yourself to maximum wealth accumulation is buy and hold. and Gary Keller (co-founder of Keller Williams) adds this toi his pathway to max wealth: buy-rehab-hold forever. This is what I do.
-
the buy-rehab-refi-rent forever will earn you max rent on min capital–compared to any other strategy I have seen.
-
you already can do the rehabs, so you have crossed one of the biggest hurdles. Most investors never get this far, for a number of reasons. but not you.
-
Understand that your goal of the “good life” is contradictory to wealth accumulation. One of the hallmarks of self-created wealth is frugality. Every time I have a pile of cash, I resist the impulse of buying a fancy car, and I buy more property. same goes for those fancy vacations. I get a bigger thrill out of piling up the net worth.
Re: show me the money - Posted by lukeNC
Posted by lukeNC on March 10, 2008 at 13:04:53:
I dont thing buy and hold is a good idea, UNLESS you
buy REALLY LOW…and rent fairly high.
I’ve already posted a few times on a friend of mine who bought a huge apartment complex for cash during the subprime hey day…Apartments were going cheap since everyone and they momma could buy a house.
Now, he’s about 98% rented. Making a killing and sitting pretty. And no debt. Cant beat that.
Re: show me the money - Posted by LeonNC
Posted by LeonNC on March 09, 2008 at 16:21:27:
Jimmy,
I agree with you 100% that wealth accumulation and being able to pay your bills with your investments are two entirely different things.
Rental property to me is like having money in the bank, kind of. Often there are large bills and risk associated with owning rental property. Rental property does build wealth over time. And TIME is a major concern to many people these days who consider real estate as an investment. Getting on the 30 year plan to even a 40 year old is something one should think long and hard about.
The man asked how he can live the good life and pay for his children’s education. I do not see owning rental property as a means to provide for those needs.
The cashflow generated from rental property needs to be saved until a substantial amount of money is socked away for much needed reserves. Equity is something that looks good on a balance sheet until it is cashed out.
I’m not exactly sure why, but I’ve seen a lot of local landlords in foreclosure lately. I’m guessing they spent the reserves on todays living expenses.
I’m not trying to start an argument. I just don’t think landlording is the investing tool that so many people are looking for to take care of their families for the next ten years. If you’ve already got money and don’t need your real estate investments to live on for the next ten years then fine. Rental properties are a good investment.
Re: show me the money - Posted by Eric in FL
Posted by Eric in FL on March 09, 2008 at 15:19:31:
Jimmy,
I am exactly like you but do you ever wonder if the “buy and hold” frugal guys have some kind of gene that makes us unique? My wife often shakes her head when I will make a point to buy the oldest truck I can. It’s like a badge of courage. I am thrilled to have my friends scratch their head and laugh when I drive up. Anyway, probably need to post this on an amateur psychology site to have my issues and several other investors mind sets analyzed. It’s an interesting thing to study.
Best Regards,
Eric
No Argument, but look ahead - Posted by Jimmy
Posted by Jimmy on March 11, 2008 at 06:02:29:
if short-to-intermediate term income generation is the objective, then figure out the highest and best use of your time, and go for it. If that were my objective, I would start up another law practice. yuck! if incoem generation in a REI-related field was the objective—>be a broker. be a rehab-flipper. deal in notes. do something where you create and clear inventory and profit from each transaction.
but there is a wonderful (long-term) income reality that comes with the buy-rehab-hold forever model. here it is:
One of the benefits of doing this model is the fact that I can tolerate 15 year ams. very, very few investors can maintain positive cash flow with 15’s. but I can. part of it is the model. part is the location where I execute the model.
between 10 and 15 years out, (when I am hitting retirement age, by the way), everything I own comes free and clear. my cash flow EXPLODES then.
in the mean time, I have to be very judicious with my lifestyle expenditures. I am willing to forego that shiny new Porsche and that month-long cruise through the Greek Isles. for now anyway…
Re: show me the money - Posted by Rich-CA
Posted by Rich-CA on March 09, 2008 at 15:53:42:
Well, Eric. I often have discussions with friends who buy Lexus, BMW and so on about ‘wouldn’t it be nice to have one of these real nice cars’. They look oddly at me when I say that I prefer to use the money for the down payment on another property to rent out. They inevitably ask why and I say that I would not be doing my family any favors putting that kind of money into something whose value only goes down. At least with rent, someone else makes my payments almost all of the time.
I don’t buy the oldest or, usually, even used (last time I was looking at Saturn and they had a special on the stick version of their Vue that was $5k less expensive new that a 20k mile used sedan - so I bought new - oh and with zero percent financing to boot). I think rather than looking at being “cheap” or “frugal” I think the term “value shopper” or “bang for the buck” is a better descriptor.
I have a friend who owns several apartment complexes locally. He drives a late model Mercedes. I wonder how many people who are late on rent look at the car and conclude he does not really need the money anyway. But if you drive up in a car not unlike the one they themselves drive, well then its a little harder to come up with the image of a landlord with bottomless pockets.
Re: No Argument, but look ahead - Posted by LeonNC
Posted by LeonNC on March 11, 2008 at 07:01:07:
No argument here either. I agree with everything you just said. I’ve got a friend with over 50 houses who does the buy rehab and hold forever with 15yr ams.
I think his only problem now (10yrs later) is he’s having a hard time with management. He’s doing it all himself and says he’s created a monster…lol.
I don’t think he’s figured out how to deal with it yet. He’s said he may hire a full-time maintenance guy. How do you plan to handle the beast because I don’t think it’s as easy as just turning it over to a management company?
I understand delayed gratification but there are a lot of people who need to get it straight. Buy and hold is a long term strategy.
Re: show me the money - Posted by Eric in FL
Posted by Eric in FL on March 09, 2008 at 18:15:54:
Rich,
That is exactly the way I think about the landlord with the new BMW. I worked as a corporate executive in a medical device company for years and had guys who worked for me driving $80,000 cars and I would secretly shake my head. Yeah, they made $200,000 a year but ask them to write a check for $10,000 and the sweat would start. It’s kind of ironic how company mid level management are much like tenants. They have the nicest cars, biggest houses and biggest TV’s yet they can’t donate $5000 to their favorite charity. I probably analyze people too much but it is ironic.
Best Regards,
Eric
Management is Critical - Posted by Jimmy
Posted by Jimmy on March 12, 2008 at 11:05:16:
Geography forced me to use managers from day one. I quickly figured out that realtors make horrible managers. I seek out energetic, fairly young construction-types. I teach them the management game. They already know how to maintain properties.
I have 5 such people working for me now, and I have 3 more in the line-up, should one or more of my current ones need to be replaced.
a number of benefits from this deal. I totally avoid the “brokerish” attitude that so pi$$es me off. my guys find me deals, and don’t expect a commish. they know they will get the work. they can fix stuff in 5 minutes and charge me $20, when a stinkin’ realtor would call someone in and charge me $75. and my guys can do a lot of plumbing, electrical and AC work iht having to call in the experts. this saves money.
Re: show me the money - Posted by Rich-CA
Posted by Rich-CA on March 09, 2008 at 20:11:41:
Which explains where people who make it past mid level get their money. They spend it on things that will return more than they put in, more often than not.
Re: show me the money - Posted by Doug-CO
Posted by Doug-CO on March 10, 2008 at 16:09:43:
Great bunch of tips from you all. I have been learning this for some time now and your thing with the hot cars is great if you pay cash and maybe leave it in the garage except on the (family outings). Im not in favor of debt. Work it down-boy to zero. Thanks for the refresher on feed profits back into the residual income.
Re: show me the money - Posted by michaela-CA
Posted by michaela-CA on March 10, 2008 at 17:15:54:
I agree with what Wayne says: There’s a difference between different debt. For example ‘leverage’. You can have 100k and pay off your 100k house. Or you can buy 10 houses with 10k downpayment each. Which is the better option? Different ways of looking at it.
Michaela
Re: show me the money - Posted by Wayne-NC
Posted by Wayne-NC on March 10, 2008 at 16:38:25:
Doug, be cognoscent of what you believe in concerning debt. This has been beaten to death over the years here on this forum, but make yourself aware that there is both GOOD debt and BAD debt. Distinguishing between the two is of utmost importance.
Re: show me the money - Posted by Wayne-NC
Posted by Wayne-NC on March 11, 2008 at 06:02:44:
Michaela, thanks for your endorsement. However true your example is, I was refering to, for example having $100K in 10 houses and me personally not paying for any of that debt service. That is real good debt times 10! (I think I brought you out of hiding some time ago and its been wonderful ever since. I just got back from a Stone Mountain business trip and the Canton deal is going fine, but never without problems)
Re: show me the money - Posted by michaela-CA
Posted by michaela-CA on March 11, 2008 at 07:45:22:
aaah, Canton. It seems to stir my memory kind of faintly. You had some kind of big commercial deal in the works, right?
Actually, you’re saying the exactly same thing I’m saying" You can do more with 100k by leveraging and still having debt than taking the 100k and not having debt. It’s all how you work it.
Michaela