I’m not a flipper of real estate as i believe it’s risky and a lot of headache to find that needle in a haystack that is 40% below market value.
So my question is does anyone invest solely for the purpose of receiving net cash flow and if so what ROI are you expecting from your downpayment. 10-20% ROI?
It seems like you need a lot of 20% down payment financing properties to cash flow enough to live off. Having the tenant pay down the mortgage is great but it seems like a slow way to build equity. What say ye?
Your correct in being skeptical. The mathmatics dont really work out when you are buying at market the typical “deal” from a realtor. In fact, I can argue passionately and persuasively that more rentals bought at market, the worse your financial position gets. Obviously, there are going to be differing opinions on this issue, but they wont be much different if you only ask landlords who own more than about 20 units.
My advice is to make buying/selling decisions from a speculators perspective, not from an investors perspective.
Full disclosure - I own alot of rental property, and the only reason it has worked out is simply because I bought every single one knowing that I could immediately resell one or all of them for more than what I paid.
Bottom line - start warming up to the idea of finding that “needle in a haystack” property thats way under market value.
I am a flipper and have no desire to slowly build wealth. Unless you are in an area where you can create a business model that pays off rentals in 5 years or so, you’re going to have to be very patient.
Focus on finding those needles. They are out there.
from an investment perspective it’s not hard to find properties that will cash flow even though you are buying them at or near market prices. I guess my conservative attitude is saying that I may as well earn 10% in real estate rather than risk it in the stock market or having it sitting in the bank.
It seems like most people on here are flippers. Do most of you hold for at least a year to avoid the ordinary income tax? What’s your exit strategy
on these deals?
It all depends where your talents are best suited. Personally, I can do better in the stock market, than real estate. I can also do all of my buying, selling, and research online. I don’t have to worry about financing, investors, or tenants.
I am not knocking real estate. Every investment has it’s ups and downs.
Our local real estate investment club has folded. I no longer see every other car with an I buy houses placard. The local banks seem more willing to deal with the heavily financed investment pools, than individual investor.
I am a buy and hold investor. I have been for a long time. I enjoyed my day job for most of that time so there was no need to look to real estate as an income source while waiting for the values to climb.
I also find it easier to hunt for cash than to hunt for deals.
As someone else said, focus on where you have special skills and where you have passion. You do not need to operate as a one man band. You want a competitive advantage so having a narrow focus and teaming up with others makes sense to me.
My exit strategy is to sell via MLS to retail buyers. We also wholesale an occasional deal to other investors. The tax question is a little more complicated, but yes, flips are taxed higher. You can manage some of this by being taxed as a s-corp.
It’s easy to get emotionally invested in a deal. Do any of you have a hard line that says in order to buy this property I need to buy it 30% or more below value. What’s your threshold?
I have done many flips. Some good and some not so good. My biggest issue with flips is that I can usually make the same amount of sale profit by renting it for a year. No incentive to sell. Of course I only buy bargains. Foreclosures, distressed sellers, steals.
One other issue is about using your own money. If you use the banks money, your returns are infinite.
I started with 3 paid for cheeeeeaaaap rentals in 2003. I mortgaged them to buy 4 more, then mortgaged them to buy more. And more and more. Now have close to fifty units. And I can say that I always used other peoples and the banks money so my returns are infinite. My tennants pay for everything, including the bank. So within a few years they will all be paid off and I will post around $20,000 per month in rents. Pay the insurance and taxes and some maintenance and the remaining monthly cash flow will be huge. It is going to be my retirement income.
What do you mean that your returns are infinite. It seems the returns would be finite. Meaning your borrowing costs are fixed, and for the most part your equity is fixed, meaning you should be able to calculate based on the loan what equity your tenant is paying down year over year… I never include appreciation because in general in keeps up with the rate of inflation so that’s a wash to me… I think every residential landlord should be able to calculate their ROI. Of course expenses, vacancies, increased insurance etc will have to be factored in as well.
What Arlan is trying to say that when you are using other people’s money the return on investment (his actual investment) is infinite.
Of course in his case he started with the 3 paid off homes as his investment and I started with with some home equity pulled out to buy my first rentals.
[QUOTE=midlifeman;885598]What do you mean that your returns are infinite. It seems the returns would be finite. Meaning your borrowing costs are fixed, and for the most part your equity is fixed, meaning you should be able to calculate based on the loan what equity your tenant is paying down year over year… I never include appreciation because in general in keeps up with the rate of inflation so that’s a wash to me… I think every residential landlord should be able to calculate their ROI. Of course expenses, vacancies, increased insurance etc will have to be factored in as well.[/QUOTE]
How would you calculate ROI is you have no cash invested in a deal?
Some folks use a different measure of success when the return on capital invested is infinite so curious what you would do.
[QUOTE=arlanj;885594]I have done many flips. Some good and some not so good. My biggest issue with flips is that I can usually make the same amount of sale profit by renting it for a year. No incentive to sell. Of course I only buy bargains. Foreclosures, distressed sellers, steals.
One other issue is about using your own money. If you use the banks money, your returns are infinite.
I started with 3 paid for cheeeeeaaaap rentals in 2003. I mortgaged them to buy 4 more, then mortgaged them to buy more. And more and more. Now have close to fifty units. And I can say that I always used other peoples and the banks money so my returns are infinite. My tennants pay for everything, including the bank. So within a few years they will all be paid off and I will post around $20,000 per month in rents. Pay the insurance and taxes and some maintenance and the remaining monthly cash flow will be huge. It is going to be my retirement income.
It may not be for everyone, but it works for me.[/QUOTE]
And it sounds like it works well for you. Thanks for sharing.
Good points. Though I do flip and still wholesale a bit, my long-term plan is accumulating real estate assets (rentals) and have them free and clear of any funding.
You can also do joint-ventures or be a lender and make great returns without needing to deal with tenants or property management. You can also do great if you learn about options and creating future paydays down the road.
There are a lot of roads you can choose for sure. The returns, cash flow and long-term wealth can be achieved with a solid plan.
It really depends on you. There are so many niches. Find one that works with your strengths and that works in your market.
For years I renovated historic homes. Then I wholesaled vacant lots (loved the hunt of trying to find the current owner, which usually meant going through probate records etc) and have been buying low-priced REOs the past few years.
For years I swore that I would never want to be a landlord again. Then I had good income in a side business and spent the funds buying 10K homes. They usually needed to have things like water heater, heating system etc replaced and they’re ready to rent out.
Now I have 15 rentals, free and clear. Again, others wouldn’t like this, because it meant involving my own cash. There are so many ways to profit from real estate that the most important this is not:’ whether you do or don’t’
, but how you do it’