I’ve gotten some great ideas from you and other posters in this thread. But I’m still a buy-and-hold guy, and I don’t expect that to change anytime soon.
In an earlier post you said to “find deals – good ones.” The original poster said he has 5 properties cashflowing $600 a month total, so that’s part of his problem. I don’t know what kind of appreciation he is getting though because in my target neighborhood properties cashflow much better, but appreciation is minimal.
I understand your strategy of buying and selling in volume, but wouldn’t these “good deals” also cashflow better? I’m thinking about using some of the methods you describe with the intention of keeping the properties.
SO I have been selling cars for about 6 years now and investing in rentals for 4 years. I have a total of 5 house. When starting out I had a dream of quiting my jobs and doing the thing I love the most real estate. Making only 600.00 extra per month after paying the mortgages. At this rate I would need 40 houses to quit my job.I dont think i’m doing anything wrong?
YOU HAVE RECEIVED LOTS OF ADVICE, ALL OF IT ACCURATE, AND MOST OF IT GOOD. ARE YOU DOING ANYTHING WRONG - ABSOLUTELY NOT, DEPENDING ON THE RESULTS YOU WANT. YOU ARE DOING LONG TERM, BUY AND HOLD REAL ESTATE INVESTING. IT WILL MAKE YOU RICH QUICKER THAN 97% OF THE WORLD, BECAUSE THEY WILL NEVER BE RICH. IT IS AN EXCELLENT PLAN. I HAVE BEEN DOING IT FOR ABOUT SEVEN YEARS, AND I HAVE ALREADY EXCEEDED MY 8-5 SALARY, ON A PART-TIME BASIS. FURTHERMORE, I THOROUGHLY ENJOY DOING IT. I HAVE ACCOMPLISHED IT WITH FIFTEEN HOUSES, BUT THE NUMBER OF HOUSES DEPENDS ON THE DEALS, THE LOCAL REAL ESTATE AND RENTAL MARKETS, ETC. I STARTED OUT AT THE SAME PACE AS YOU, AND STARTED ACCUMULATING FASTER WHEN I SAW HOW WELL IT WORKED, AND AS I STARTED HAVING MORE CASHFLOW. I AM 37, AND I WILL BE A RETIRED MILLIONAIRE BY AGE 40, BY DESIGN. I WILL BE A PART-TIME INVESTOR FOR THE REST OF MY LIFE. I STILL WORK NOW BECAUSE I LOVE MY J-O-B, AND THE PAY AND BENEFITS ARE DECENT.
YOU HAD ONE PERSON ADVISE YOU MUST BUY AND SELL FOR PROFIT (FLIP) TO GET RICH QUICK. YES, AND NO. IT IS FASTER, BUT MAKE NO MISTAKE, FLIPPING HOUSES IS NOT INVESTING - IT IS A J-O-B (AS MENTIONED BY ANOTHER PERSON). IF YOU DON’T WORK, YOU DON’T GET PAID. YOU DO GET TO BE YOUR OWN BOSS, SET YOUR OWN HOURS, DETERMINE YOUR OWN PAY, ETC.
RENTALS WILL PAY YOU WHETHER YOU WORK OR NOT. YOU CAN EVEN HAVE THEM MANAGED FOR YOU AND BE COMPLETELY HANDS-OFF (I MANAGE SOME MYSELF, AND HAVE SOMEBODY MANAGE OTHERS FOR ME). FLIPPING HOUSES WILL ONLY PAY YOU WHEN YOU FLIP HOUSES. THE KEY IS, FIGURE OUT WHAT YOU LOVE TO DO, AND DO IT. IF YOU HATE GOING TO WORK EVERY DAY, TRY FLIPPING. IF YOU ARE SUCCESSFUL AT IT, YOU CAN CHOOSE WHICH JOB YOU LOVE MORE, AND QUIT THE OTHER ONE. THAT MAY HAPPEN IN MONTHS, OR MAY TAKE A FEW YEARS, DEPENDING ON YOUR PACE AND HOW SUCCESSFUL YOU ARE AT IT. PERHAPS YOUR IDEAL MIX IS TO FLIP AND MAKE ENOUGH MONEY TO QUIT YOUR JOB FAST, BUT ALSO INVEST SOME OF YOUR EARNINGS IN A LONG TERM PLAN WHERE YOU CAN EVENTUALLY QUIT FLIPPING, TOO. I KEEP GOOD HOUSES WITH GOOD TENANTS, AND 1031 EXCHANGE AND UPGRADE HOUSES THAT I AM UNHAPPY WITH.
ANYHOW, BEST OF LUCK FIGURING IT OUT, AND MAKE SURE YOU ENJOY THE JOURNEY (NOT JUST THE DESTINATION)!
Re: When can I Quit my Job? - Posted by Mark (SDCA)
Posted by Mark (SDCA) on November 08, 2005 at 16:29:59:
Absolutely NOT are you doing anything wrong. You are building long term wealth. The key to this is that over time rents go up while your mortgage payments stay (basically) the same.
So your cash flow should go up over time. Also, your property should appreciate over time and you will pay down the mortgage. So every month you should be “richer”. Right now you are probably equity-rich and cash-poor. Nothing wrong with that. Buy and hold REI supports a JOB VERY well. It has for me for 14 years.
My advice is to keep doing what you are doing. It sounds like you are in the acquisition stage of your REI. So keep acquiring. Eventually, you will be in the harvesting stage. At that point, I would recommend that you sell one house to pay off another. Then use the rent from that house to pay off the next. And so on.
Posted by ken in sc on November 08, 2005 at 11:25:37:
It appears to me that you need to realize that rental property is an investment, and your job provides monthly income. These are 2 different things at this point in your life. It is like buying some stocks and hoping that they will increase in value in just a few short years so that you dont have to work anymore. Could happen, but likely not.
The key to this is to realize that you will either have to keep your job for a good many more years, or also learn to buy and sell houses for income, as well as keep buying rentals for investment for long term wealth, in order to quit your job.
One poster suggested selling what you now have as rentals in order to use the equity to buy and sell. I would not sell your current rentals unless they are not good houses. As many on this board have shown, you can get into buying and selling houses part time and without a lot of capitol. The fact that you have equity will make it easier to borrow at a bank. So I believe that you could start buying and selling some houses on the side part time, use that extra cash to keep buying rentals and also save some cash for the day you quit. When it becomes apparant that you can consistently buy and sell houses to make sufficient money to live, and you have 6 months to a year income cash in the bank, then you can comfortably quit that job. This might take you anywhere from 2 to 5 years, depending on how hard you work and how much income you are trying to replace. But it will still be faster than waiting for the rentals to do it by themselves.
Now, this all leads to the question of why. Why do you want to quit? Because buying and selling houses for income is work, too. I happen to like that work so that is what I do. But if you try it part time and do not like it better than what your currently do, then I would consider other alternatives. Life is too short to not do something that you like as work.
Posted by Marc Donovan on November 08, 2005 at 05:21:48:
You should now have enough equity to be able to do deals. Sell all of your properties - they are not making you money. Take the cash and go find deals - good ones. Add some curb appeal, then sell for cash. Then keep doing that over and over. Quit the job when this is going well - you will know when that happens.
You can sit on that $600 a month income until you are gray or you can go find deals with equity and get rich quick. Your choice.
We are at the top of the market, so sell. When the market softens, it will not matter to you because you are only into a deal for a few months at a time. Not long enough to have any effect on your equity.
You will soon need employees to handle the details. That’s OK, just hire smart people and pay them well. Give them a piece of the action.
You are almost there. Just need to change tactics a little bit.
Mark,
I can relate - I also have about 5 houses, and have ambitions of leaving work one day for the last time.
I am in the midst of a wake-up call. I had a long-term tenant (5-years) move in the night after they were a few weeks late on rent. Deferred maintenance issues made this a rehab project. (We got er done, and just moved in a new tenant.)
I’m also evicting another tenant who decided that rent was optional. I’ll be moving his crapola to the curb this time next week.
Another house has a leaky foundation that needs attention.
It would be nice if everything would just go my way on a consistent basis.
I’ve decided that the best thing I can do for the next few months and few thousand dollars is to improve the properties I have, and get them cash-flowing properly with tenants who pay. Once that is done, I’m going for more. I’d like to sell one of them and use the profits as a down-payment for a multi-unit.
As soon as I have enough cash flow to feed the kids and keep the tenants happy, I’ll be walking!!!
Posted by RMW(FL) on November 07, 2005 at 19:44:06:
You are definately on the right track. I think people get it in their head that being able to quit your job and switching to real estate can happen quickly. 95% of the time it does not. Couple of suggestions would be to tap into some of your equity and work on buying 2 houses (or more) per year. Or, sell a house or two and roll the gain into a multi-family property. There are many ways to do it but it WILL take time. Read as much as you can on this website and read as many books on the subject as possible. GOOD LUCK!
Posted by Rob FL on November 07, 2005 at 19:19:07:
How about sell a house or 2 and cash in on the appreciation? I buy about 2 rentals a year and sell 1 or 2 per year at 60-80% of ARV. The appreciation usually brings in about 30-50K or more per house. Capial gains taxes are only 15%. Those sales pay alot of bills and I it does not take 40 hours/week to do this.
Posted by Mike-OH on November 07, 2005 at 19:00:06:
Well, let’s see. You need 40 houses to meet your income objectives. You’ve bought 5 houses in 4 years. By my calculation, you should be able to quit in only 32 years! Now that’s what I call long term investing!
Sorry to be a broken record here, but… - Posted by Marc Donovan
Posted by Marc Donovan on November 08, 2005 at 18:38:39:
Golden rule - You make your money on the buy. So how do you expect to make any decent money if you only buy once a year?
Its kind of like a used car dealer who only rents his extra cars. He makes a few bucks on it but he can’t afford to buy when he finds a deal. He needs to move them through his inventory if he is going to make a living.
Buy-and-hold is for pension funds and retired folks. You have demonstrated my point very well - 14 years and you still have a job. That’s no different from my uncle who puts his extra cash into stocks and bonds. After 14 years he is doing very well also.
You make your money on the buy - so the key is to make more buys, then get rid of them as fast as you can so you can make more on the next buy. This is what you must do if you want to get rich in this business.
Posted by Marc Donovan on November 08, 2005 at 18:26:01:
Yes you can make deals work with little or no cash, but its much easier to do deals with 20% (or more) down, owner-carry paper with spare cash to quickly fix and market. That equity is better spent rolling through one deal after another. If you can buy a 100K house for 80% of market, then sell within a few months, that’s 10K per month - which is a comfortable living. Its also a double-your-money-every-two-months deal. The more such deals you have in the air, the more you make. That 20K of equity is easier to grab when you have 50K+ sitting in reserve and can move on a deal. While other buyers are jerking around trying to get institutional financing - which takes FOREVVVVVVVER, you can walk in, plunk down your cash and close in days. That is a seller’s dream buyer.
Its true most sellers are looking to get cashed out at the end of the day, so they really are not that motivated by cash in hand, but when you take over their note, pay them for their equity in cash and close in days, it really puts you at the front of the line. And its much cheaper closing.
Example here - its a refi, but still the same problem. WAMU is now advertising about their low doc loans. Contrary to those ads, I have been going through the loan machine for 2 months straight on this one loan. Reality is it takes a lot of time to get institutional money - even with perfect credit. If you and the seller have to wait and wait and spend hours pushing the process along, then you are at a disadvantage to someone who can close this week.
Posted by Sailor on November 07, 2005 at 21:22:56:
I’m convinced you have to start early. I started retirement saving in 1966, & bought my 1st house in 1967, I figured out a long time ago that time was the most important thing to me, & if I wanted it I’d have to start relatively young. Oh, yes, it has definitely been worth it. I’ve been able to do almost all the things I ever wanted–
Quit today.
Take all that time you spend on the lot, waiting for customers, doing paperwork on skinny deals that pay peanuts and go out and spend 8-10 hours a day looking for real estate deals, knocking on doors, put out some ads, flyers, bandit signs, etc.
Act as if you are already a real estate investor full time and then presto - you will be there.
It is as easy as that.
I’ll have to agree with Marc here. The way to “retiring” from the 9-5 job is by buying and selling. I am just starting to do that now, as I have always bought, held and rented. Of course if you hit one homerun, like a 100 unit building with great cash flow, you can quit your job the next day, but those deals are few and far between. I like the stratagy of buying great deals and then iguring out if it a better deal to flip or to rent. If there are items that are going to nee attention a few years down the road, like a complete roof tear-off and re-roof, that might be better to flip. If it’s a nice, solid house with a decent yard, garage, vinyl siding and a good roof, it might be a good rental. I think that flipping AND having the steady rental income is the way to get where you want to be.
Posted by ken in sc on November 09, 2005 at 06:56:02:
I don’t disagree with yor points. However, I think it is fairly easy to get reasonable and fast financing for a buy and sell deal from a local bank as long as you have:
A good deal, 80% LTV or less.
A good credit score.
A good financial statement.
Our friend could have all that without selling his rentals. I borrow all the time from small local banks that fund basically 100% of the buy and sell deals as long as I meet those 3 criteria. These loans can be funded in under a week. Yes, refinancing a long term rental with WAMU or a similar lender takes a long time, but he does not need a loan such as that for a quick 6 month buy/sell deal.
The point is: If he does as you say and sells the rentals to use the cash in his buy/sell biz and makes a “good living” buying and selling - what will his net worth be in 10 or 20 years? He will have to pay taxes on his earnings and then invest after tax dollars in stocks or something else. If he is into RE, it makes sense to keep what he has and keep adding to it as RE rentals earn an incredible rate of return. I say he can do both at the same time.
Posted by whyK-CA on November 07, 2005 at 23:27:36:
You maybe an experienced and successful investor, but I?m with Sailor on this. I also think this is a dangerous advice. It can be simple and easy, but not always, depends on lots of factors?