Is $200 a month a lot of money?
How you answer this question speaks to your level of financial sophistication.
How Far Would You Go for $200?
Most people would not go very far out of their way to make an extra $200 a month. When compared to a monthly salary of $3,000 or $4,000; $200 sounds pretty insignificant.
A person might pick up an extra shift on a Saturday for a little vacation money; but the uncomfort from losing a weekend day keeps them from making a habit of it. Someone might sell an outdated computer or game system for a few hundred bucks, but that money’s usually gone by the end of the weekend.
As a way to create wealth, $200 doesn’t even cross most people’s minds. The average person spends more time buying lottery tickets and gambling in casinos than looking for ways to add another $200 to their monthly cashflow.
Successful Real Estate Investors
I happen to have the best job in the world. I get to produce videos about real estate investors, which allows me to meet many successful people and pick their brains in the process.
I’ve found that all the successful real estate investors I meet are excited about $200 a month in cashflow from one of their rental properties.
In most cases, that $200 a month is the main reason they pursued the property.
The Definition of Wealth
How you feel about $200 a month has a lot to do with how you define wealth. Most people associate wealth with a large dollar amount: Alex Rodriguez signed a $80 million dollar contract, or Bill Gates is worth $80 billion.
Throughout most of my childhood and early adult years, my definition of wealth was 1 million dollars. The day I opened up my bank statement and it said “$1,000,000″ was the day I was going to be wealthy.
Rich Dad, Poor Dad
My definition of wealth changed the day I read the book “Rich Dad, Poor Dad,” by Robert Kiyosaki. If you have never read the book before, your next click should be Amazon.com to order yourself a copy. This book changed the way the world looked at investing.
One of the most important concepts in “Rich Dad, Poor Dad” is the definition of wealth. While most people look at wealth in terms of a large, one-time amounts of money; Kiyosaki says that this has nothing to do with wealth.
Wealth is determined by this simple test:
Quit your job today; and without touching the principle on any of your investments, how long can you live on your passive income?
Passive Income
A few forms of qualified passive income are:
- Interest from Checking and Savings accounts
- Dividends on Stocks (not capital appreciation)
- Cashflow from Real Estate
All of these things A) give you cash on a consistent basis, and B) once set up, are relatively easy to maintain.
How Long Can You Live on Your Passive Income?
To figure out how long you can live on your passive income, you first need to know how much your personal bills are each month. Add up all of your expenses: everything from the house note and car note, to toothpaste and tuna. If you’re married, just do it for your half of the bills.
Let’s say that the average American needs $3,000 a month (after taxes). Since a month is about 30 days, that’s $100 a day.
So how long can you live on your passive income?
I would suggest that most Americans can only live a few hours… maybe a few minutes on their passive income. Most people don’t have anywhere near $100 a month in qualified passive income. They might be getting a few cents in interest from their savings account, but that would only cover a few seconds.
One Single-Family Rent House
Let’s say, in the next three months, you go out and buy one single-family rent house that cashflows $200 a month. Can you see how you may have done more to retire yourself in 3 months than you had in your entire working career?
That one house, and it’s $200 a month cashflow, pays for 2 days out of your month. If you don’t have more than $200 a month right now in passive income, this one house did more to retire you than you had done for yourself in your entire working career.
Now, go buy another one… that pays for 2 more days…
Buy another and you’ve now paid for 6…
By the time you have 15 rent houses, you’ve now paid for all 30 days in the month… and the month starts over again.
Theoretically, you can now live forever on your passive income.
Side Note on Kiyosaki
After seeing Kiyosaki live, buying his board game, and reading many of his books; I’ve come to realize that he is BIG on ideas, but small on details. When you finish reading his books, you’ll be so jazzed on creating wealth that you won’t know where to start… (that’s because he didn’t give you any details.)
Make sure you are part of a local investor group to fill in all the little details that Kiyosaki doesn’t tell you. My favorite is Lifestyles Unlimited Real Estate Investing, Education, and Mentoring where I am both a member and mentor; but you should shop around until you find a group or groups that you are comfortable with. Go to NationalREIA.com for a list of investor groups in your area.
$1,000,000 401k
Now, let’s compare our 15 rent houses to a million dollar 401k. Let’s assume you were the worlds greatest at-home stock trader in the early 2000′s.
You listened to Jim Cramer every day and managed to act on his good advice and avoid the bad advice that lost everyone else 40% of their portfolio in 2008. You sold everything before the market crashed and now you’re ready to retire.
The challenge you now face is how much money to take out of your 401k in your retirement so that it lasts the rest of your life
Or.. as Real Estate Investor Del Walmsley likes to put it: so you can hurry up and die before you run out of money.
The Conventional Wisdom Plan
You seek the advice of a financial planner and they give you the conventional wisdom on retirement:
1. Conservative Investments
You’re told to put your money in conservative investments that will only yield 2-4%, but at least you can have some peace of mind in retirement. Sounds reasonable.
2. 4% Drawdown
You’re allowed to draw down your 401k at the rate of 4% per year to live on: $40,000 per year.
Before the crash of ’08, 4% was generally accepted to be the right amount to draw down in retirement. The book “The Number” lays out research from William Bengen showing that those who drawdown at 5% have a 30% chance of running out of money.
3. A Little Interest
Won’t I be getting some interest, too?
Yes, but it will be at a very low interest rate and getting smaller each year as you eat into your principle. Let’s say, another $10,000 per year.
$50,000 a year doesn’t sound as great as you had always imagined, but at least you don’t have as many expenses as you used to (you did pay off your house, didn’t you?).
4. Pay Taxes
Wait, I thought we were done!
Sorry, here comes the worst part… Now you have to pay taxes. You were sold on the 401k as a way to defer taxes, but you didn’t realize that defer was not the same as avoid. You pay roughly $14,000 in taxes which leaves you with $36,000.
$36,000 a year just happens to be $3,000 a month or $100 a day.
15 Rent Houses Did the Same Thing Faster
15 rent houses did the same thing as your million dollar 401k, but did it take you your whole working career and a huge chunk of your paycheck to build?
No. You can buy 15 rent houses in 5 years or less.
The Five Year Plan
Here’s how to buy 15 rent houses in 5 years:
Year 1: Save $5k from employment to buy 1 house with a hard money loan. (1)
Year 2: Save $5k and refinance $5k out of the 1st house to buy 2 houses. (3)
Year 3: Save $5k, refinance $10k out of last year’s 2 houses, to buy 3. (6)
Year 4: Save $5k, refinance $15k out of last year’s 3 houses, to buy 4. (10)
Year 5: Save $5k, refinance $20k out of last year’s 4 houses, to buy 5. (15)
This example only took $25,000 out of pocket over a 5 year period… much less than a million dollar 401k …and much faster.
But Wait… There’s More
The story doesn’t stop there, with 15 rent houses and $3,000 a month in cashflow. The beauty of real estate is that there are so many different ways it makes you money.
While a 401k gets smaller and smaller in your retirement, rent houses continue to increase in value and cashflow year after year.
1. Equity Capture
If you bought those houses correctly, you should have captured equity in each house. Let’s say you captured $20k in each house. That’s $300,000 added to your net worth.
2. Market Appreciation
Real estate doubles in value every 20 years. That means: by the end of your retirement, your real estate holdings would have exploded in value.
If each house was worth $100,000 when you bought it, then all 15 were worth $1.5 million. You could potentially add another $1.5 million to your net worth over the next 20 years.
3. Cashflow
Rents rise over the long run, adding to your cashflow year after year.
4. Principle Paydown
Your tenants will be paying down the notes on all of your houses. If you had 20 year notes on each house, you would have them all paid off in 20 years, adding another $1.5 million to your net worth.
5. Tax Advantages
Real estate investors pay the lowest taxes of any for-profit group in the United States. The cashflow is virtually tax-free when you account for the depreciation deduction the IRS allows you to take.
If you decide to sell and capture your equity, you can roll the profits into a 1031 tax exchange to defer the capital gains tax. When you pass the properties down to your children, they take over the property at the new cost-basis, wiping out all the capital gains tax.
Conclusion
Now, do you see why I stopped playing around with small-ball investments and focused on real estate? Real estate is the most powerful wealth-building tool that is available to everyone in the United States.
Stop playing small-ball and start investing in real estate.
{ 32 comments… read them below or add one }
Not to be contrary but I sense a flaw in your five your plan
For the first property, a hard money loan may only provide you with 65% of the total value of your property. Thus, your $5k investment will only get you a property that is somewhere around $20k total value. I don’t know where you live but I’d be hard-pressed to find a property that could net me $200 a month in passive income.
That means, in practice, there’s a much higher barrier to entry than theory. Now obviously, if you have means to to secure the finances to do this kind of thing, it may be possible. One of the big problems for people who are trying to make a plan though, is that they’re already mired in other problems (credit, budget, income, etc)
I know what you’re going to say. The original argument – it’s more effective to put your money into this kind of thing than a 401k – still rings true. However, I doubt that to be the case for most people until they approach the upper end of maximum 401k contributions (ie, around $16500)
Sounds really optimistic, assuming everything works, but in this climate, I don’t think it’s as realistic as it should be.
The assumption is made that this can continue forever, but reality is…things change. Tenants move out, you have to find more, and it’s difficult having stability in this market, unless your rent is $400 for a mansion (and you still manage to make $200 from that)
Many people have trouble saving $100/mo, much less $5k/year. It takes money to make money, true, but unless you have very little expenditures (i.e. no wife or kids), it’s gonna be damn near impossible making average wages.
This also assumes that you don’t have to pay out money to keep the houses up. For that many properties, one or two people cannot keep up, and would need to hire a team, which — either way — would take away from earnings.
It may be a good start, but I think people today need more than just possibilities and hope, because those in and of themselves don’t pay the bills.
Informative post. Can you elaborate on the first house bought with $5k and a hard money loan? Particularly about the LTV restrictions. Feel free to email me about it.
Thanks for the vigorous comments. I can tell you guys did your homework.
Jack, the hard money lenders in my neck of the woods (Central Texas) are loaning 70-75% of the After Repair Value. That means if you find a house worth $100k (after repairs) and you can buy and rehab it for $70k, you can buy the thing with no money out of pocket.
I know it sounds hard to believe, but I’m seeing several of these deals go down every month. Check out this video I produced as an example: http://su.pr/1zlc0v
Cooliojones: as for saving the money, you can avoid that by either doing a 0-down hard money deal, or raising the money by finding a deal and flipping the contract to another investor for a $5k finders fee.
About the maintenance expenses. The investors in my circle fix everything up front to minimize maintenance and then put away a $50-$100 maintenance reserve each month that would be above and beyond the cashflow figures.
I was a sceptic too until I started hanging around with a bunch of folks who were doing this sort of thing successfully.
Keep up the questions, it’s good to be back in the blogosphere.
Passive income is certainly the engine of growth if you can get it. The five year plan outlined above depends on being able to access finance from banks that have become wary of lending for property as they have recently been burned in this area. Also I would not underestimate the costs associated with management fees, taxes and maintenance.
Thanks for the comment, but hard money lenders are not the big box banks who have been tightening lending. I see these loans getting made all the time.
As for the fees associated with cashflow… I include all those fees before I get to $200 a month cashflow.
Interesting proposition which I want to check out further. But, I may differ on the “small-ball investments” claim based on advice from some big time real estate and business investors.
One of these guys says the order of wealth creation goes like this: first, invest in your own small business until you reach $500K/year; second, invest in real estate. After success in those two areas occur, then you should invest in big businesses, i.e. the stock market.
The IRS lets you depreciate your properties for a reason: the value of the improvements is decreasing. The value of the LAND might increase, but improvements almost never do. Not without repairs, at least (that are, coincidentally, about the same as the amount of depreciation…imagine that).
It’s not a free lunch.
Personally, I think landlording is one of the more difficult ways of generating passive income.
Thanks Brian – I must admit I never thought of going down this route due to the inherent hassles of looking after tenants. I agree with cooliojones that this is a kind of rose-tinted look at real estate investing, but I also agree that it sounds like it is worth the effort of having to deal with tenants and all the good and bad things that entails.
I’m not in a position to invest for another year or two, but after this I think I’m going to try and buy my first investment property. In the meantime I’m going to hit the books and find out everything I can before I move forward.
Thanks!
James
Kyle, historical data shows that real estate appreciates 3-5% per year over the long run, which will more than compensate for maintenance costs if the property is bought correctly.
In addition, professional real estate investors will minimize maintenance costs by fixing everything up front (in the loan), which means that the tenant will be responsible for most issues. Also, we tend to hold rental properties for less than 5 years and roll the equity into more rental houses. Things start to break after about 5 years.
The fact that the IRS lets you depreciate real estate is actually a bit surprising. I think that we all would agree that a car depreciates in value each year, meaning that you could not get what you paid for it the next year. By contrast, real estate values go up in the long run.
While a $5k loan to get a $100k house is great (assuming After Repair Value), you still have to fix the house and spend the money to do so as you mentioned where “professional real estate investors will minimize maintenance costs by fixing everything up front (in the loan)” … since you’re the real estate investor, and the tenant is paying mortgage rate + $200/month, you’re still stuck with the loan you took to fix the house – unless you have the cash to fix the house as well.
My old landlord was doing something very similar to what you said. The only big difference he said was he was able to minimize costs (and the only way to turn a profit) was to do all the repairs himself. Otherwise there was no way he would be able to make much money on buying properties. He’s worked his way up from duplexes to multi-dwelling apartments, all the way doing his own renovations and maintenance as the tenant is never responsible for problems that occur (another flaw I believe in your argument that the tenant is responsible for most issues).
Otherwise I’d like the see the monthly breakdown of cash flow from Day 0 to better understand exactly what you’re suggesting.
This is all theory. Put it to action and trying to get the same result might be a totally different story.
Thanks for the comments DJ,
The idea with a hard money loan is to buy it low enough to include the repairs in the loan. If it is a $100k house (ARV), you want to buy it at $50k to include $20k in repairs and closing costs.
You’re right. This strategy doesn’t work if you buy the property incorrectly. The successful investors I run with buy it low.
Dude,
Why would you only account for “your half” of the expenses as a married couple. That sounds like a stupid idea. Does any married couple out there still have separate finances? Sounds dumb. Let me know how that works out for ya!
The problem with owning 15 houses is that this would require approximately 3 million dollars in capital. Sure, you could get a loan for most of them, but then you would be heavily leveraged.. What happens if you can’t find tennants for your properties for a long period of time. Then you would be screwed. It is interesting that you are comparing a one million dolalr 401K with 15 houses worth $3 million. something doesn’t add up here
Anotehr thing that I dislike about real estate is the fact of being a landlord, having to evict tennants, fixing stuff etc. If you hire a manager to do this, then you’d be paying them a 10% off the rental revenues you generate. Why don’t you simply invest in real estate investment trusts (REITS) which trade like stocks, and pass through most of their income to the stockholders?
With stocks at least your maximum loss is the value that you put in ( if you didn’t use leverage). And yes, it is fairly easy to construct a portfolio of dividend stocks which could yield 4% and could grow your dividend income above the rate of inflation for extended periods of time.]
Brian,
Can you provide a cash flow example showing how this works? In my experience (limited), hard money loans are usually limited to 60 or 70% LTV and carry high interest rates. I’m having a hard time getting any numbers to work with these seemingly stubborn facts, unless the property is severly distressed, but can be repaired at low cost.
Great post. This is something I am definitely going to look into.
15 rent houses does not require $3 million, it only requires the down payment on each. With hard money, that might be $5k or less, maybe even $0.
Whether or not this situation is highly leveraged depends on your definition of leverage and your opinion on whether or not leverage is bad.
A hard money lender will only loan up to 70% loan to value. That means that your real estate is only 70% leveraged, which is not very high by today’s standards. A few years back, banks were offering 95%, 100%, 110% and higher LTVs, which eventually collapsed.
I don’t consider 70% LTV to be highly leveraged, especially on an appreciating, stable asset.
The point of the article was that a $1 million 401k requires much more out of pocket and yields less.
If you think that stocks are less risky than this kind of real estate investing, then I haven’t adequately explained the benefits of investing in under-valued assets.
Buying a REIT or a stock at market prices means that you are at the mercy of the market and can lose your entire investment.
Buying a piece of real estate at 70% of market value means that you are protected against a 30% swing in market value of that asset. In the areas and types of homes I am investing in, real estate doesn’t swing much more than 3-5%.
You’re talking about 4% returns when the real estate investors around me are taking in the hundreds of percent returns. You can’t get rich on 4% a year. That barely keeps up with inflation.
Thanks for the post Brian. I say let the skeptics be skeptics; let those of us who are willing to take a chance go ahead and take a chance. The only way we’ll ever know if real estate is a good investment is to go out and buy real estate. I did. I now own 5 houses. Sure I have to evict the occasional tenant, and I’ve painted a few coats of paint on the weekend. But nothing in life comes w/o cost. Investing in REIT’s or stocks or ETF’s is easy, but you also have absolutely no control over market fluctuations. That means it isn’t investing…its speculating. While all the real estate doubters squabble over “real” numbers and “imaginary” numbers, I’ll be out there buying more houses.
Best wishes.
Brian-I understand what you are saying. It is important for people to understand that there are many ways to build wealth. One of the best ways or least amount for money required or years of work is real estate investing. Start small and work your way up. I have got money back on my purchases of single family homes using hard money and refinancing into permanent 30 year fixed rate. So far for me my rent houses have been very instrumental in my families finances. My taxes are less, a lot less. We have also graduated with our experience and contacts into commercial real estate. Start with one house… see the benefits when ran properly. Add more and do more for your retirment than any 401k or pension plan. I can tell you my husbands pension hasnt grown that much in 12 years, but our real estate portfolio has grown a HUGE amount. Yes even in a down market. Our cash flow is increasing, because we are going up on our rents.
Thanks for putting this out there Brian.
Good information and makes people think a little differently.
Thank you for such an inspiring post, Brian. Skepticism is a healthy characteristic and I am sure that you are appreciative of the open-minded questions asking for clarification, but some of the comments I am reading are just outright false beliefs. I would encourage anyone with such certainty to question the belief, consider the source, and re-evaluate.
For example, I read above that “it takes money to make money.” I have purchased over 60 single family homes over the last 10 years; currently hold about 20 as rentals and have rarely used what I refer to as O.O.P.S., or out of pocket spending, in these acquisitions. There are mortgage providers that have recognized significant opportunity from the tightening credit markets and have sought private funding sources to develop their signature portfolio loan products.
Additional sources of funding that do not require much, if any capital to make a deal work include privately cultivated lending pools, sellers willing to finance all or part of the transaction themselves, equity partners, credit partners, and as mentioned in the post, organized hard money lenders. In cases where I have had money out of pocket, it returned to my pocket in less than 3 years from cash flow alone, plus I received the benefits of principle reduction, market appreciation (yes, even in this environment), equity capture, and substantial tax benefits.
Speaking of tax benefits, the man who mentored me as I began real estate investing discovered the power of real estate as a wealth building tool in the early 1980’s when, as an IRS examiner he audited the tax return of a real estate investor. He bought his first property later that year and retired from the IRS in 1989. Today he owns over 80 properties and vacations for 5 months of the year. The comment that the depreciation amount taken in an investor’s tax return is the same as the amount actually spent and therefore “a wash” is uninformed. For the moment, let’s presume that this is the case. If so an investor would still deduct the actual expenses AND the depreciation allowance so the tax advantage remains. In fact, depreciation can even be accelerated to gain even larger write-offs.
Another false belief in this commentary is that landlording has to be a hassle. I owned a property management company that handled over 120 scattered site units (mostly sfh’s, some duplexes and a 5-unit property). My clients did pay up to 10% of gross rents received as stated above and the only issues I had with tenants were the ones I inherited. So much of this and I believe any business is integrity. By providing clean and functional homes that working families can afford and then screening applicants properly much of the infamous hassles can be avoided. What you get are landlords providing a great home to tenants who have a history of taking care of their obligations.
The landlord is 100% responsible for ensuring that the home meets this standard of condition and the tenant is 100% responsible for maintaining it. My tenants and I share the responsibility for those items outside of maintenance that “just come up” contractually with a repair deductible written into the lease. They pay the first $250 of each repair and I have to cover anything over that amount. I buy insurance for any exposure I have in these areas.
Thanks again for the post and I’ll keep reading.
The skepticism and due diligence being gone through here is good. Perhaps flaws in the plan can be identified, taken account of and this lead to an improved approach to real estate investing.Too many people have been burned on all kinds of investments including stocks and real estate in the last few years. Indeed the sub prime real estate debacle almost brought down the entire global financial system when worthless sub prime mortgages were packaged up and sold on as stocks.
Investors have been burned on real estate in the following ways:
- Negative equity where the cost or buying and repairing the property is less than its market value.
- There is a reduction in property values generally due to prices going up too much when borrowed money was more freely available prior to the credit crunch and they are now retracting.
- Interest rates going up pushing up costs of borrowing caused by banks trying to rebuild their balance sheets because they have bad debts associated with real estate.
- Over leveraging where banks call in loans and put real estate businesses into liquidation to recover some capital.
- Unavailability of capital to complete projects.
- Increases in property taxes by governments scrambling for cash to fund bail out plans caused by unavailability of funds due to the financial system crises.
- Rent controls.
- Planning permission delays and rejections.
- Falling rents due to oversupply. Entire estates have been destroyed in some areas due to oversupply. There can also be periods when the property can not be rented due to oversupply.
- Exorbitant property management fees being charged on apartment complexes.
Don’t get me wrong here Brian, I am a fan of this blog and the passive income model and all for exploring ways to achieve it but we also need to get real here. Positive thinking is fine and gets us motivated but we should explore the risks thoroughly and find ways to mitigate them.
I wrote a comment here several days ago, yet it was never posted for whatever reason. Now I understand what type of site you are running – you are promoting just one idea ( investing in leveraged real estate) and you do not have your readers best interests at stake. There’s so many risks of rental real estate, that it could turn the paltry positive cash flow you are receiving into large cash outflows quickly. If you have an increase in vacancy, if tennants trash the place or take months to get evicted or your managent company decides to use their “fix it guy”, you are in trouble. Add in the excessive leverage and you are toast. Shame on you.
Best regards,
Dividend Growth Investor
Dividend, your comment has been approved above for many days now. Sometimes it takes awhile to post comments since I don’t check them everyday, but I don’t censor unless the comment is spammy, malicious, or inappropriate.
This site actually discusses several different ways to create passive income. I even ventured to write a few articles on stocks in my early days; but have since moved completely away from stocks because I find them to carry too much risk.
I live by Warren Buffet’s 1st and 2nd rules of investing: 1) Don’t lose money, and 2) Don’t forget rule #1.
It’s interesting that stock pickers look up to Buffet when he is actually telling them not to buy stocks unless there is no chance they will go down in value. Buffet buys at wholesale as opposed to retail.
He buys a $2 million company for $1 million; 50 cents on the dollar and turns around and markets the company to the masses for the full value.
We’re doing the same thing in real estate: buying a $100,000 house for $50,000.
I would agree that real estate investing is risky if you are buying incorrectly. If you are paying retail, with small cashflow margins, slumlording the house out to unqualified tenants, etc… then yes, you are right.
But, if you buy a house at 50 cents on the dollar with cashflow, fix everything up front, put the best product on the market at the best price, screen your tenants properly and manage the house yourself instead of managing your management company… there is very little risk.
The eviction process takes 28 days, which means you won’t skip a beat on your cashflow… The deposit (equal to 1 or 2 month’s rent) covers any damages…
I don’t run into occupancy problems because I stick to bread-and-butter homes, have the nicest rental on the block, and charge the least rent.
Leverage itself is not evil, improper leverage is… None of my loans are higher than 70% loan-to-value. That means that I don’t borrow more than $70,000 on a $100,000 house. The market would have to drop 30% before I got into trouble… only the most volatile real estate markets in the country experienced that kind of drop, and I stay far away from them.
What would be crazy is to take a loan out to buy stocks at retail…
Common misconceptions about real estate and leverage keep people from ever getting rich.
When you say “With stocks at least your maximum loss is the value that you put in ( if you didn’t use leverage)”… You are admitting that you could potentially lose 100% of your money. That is in direct contrast to Warren Buffet’s 1st rule (and 2nd).
We don’t lose money in real estate because we buy like buffet tells us to buy: at 50 cents on the dollar.
Thank you for taking such an interest in this article, you brought up some great questions. I checked out your site, and I commend you on the dividend approach to stock investing because too many people have been sold on the concept that appreciation alone is the way you make money in the stock market. Your approach is more conservative than most, for which I applaud you; but it’s still too risky for me.
Brian,
I apologize for my earlier comment. I guess I was quick to judge, without doing my “due care”.
I am happy you took the time to discuss your approach to investing in real estate. To me real-estate is riskier than stocks, but I understand your opinion ( which is opposite to mine) as well. As for stocks losing 100% of their value, I own a diversified list of almost 40 stocks, which are some of the largest corporations in the world ( multinational operations, several of them global heafquarters, strong brand names). If they all go to zero, we would have much bigger issuers to worry about than the value of our portfolios
Anyways, good luck with your site and investing. At the end of the day one has to stick to what they know best. If you know real estate and you can make money from it, I am hopeful you’d even better over time.
Best Regards,
DGI
How can you find a property for .50 on the dollar (and 15 properties at that)? That amount of free money has never existed where I’ve been.
Here are 2 houses we found last month that were pretty close to 50: http://geniustypes.com/category/video_production/web_series/
Hello Brian
I am genuinely happy to have found a site so simple and open and yet so full of valuable info. I love your system and would love to implement this strategy however I have a slight problem (and am hoping you have advice or help which can combat this issue)
In Australia where I reside (Cairns more specifically) it is nigh on impossible to find deals where I can finalise anything near a 70% ARV because of the lack of massively run down real estate with largely reduced prices. Having seen your Glendora and Blue Lakes vids (which are good and would love to see more of similar), trying to compare a similar house in similar condition in a low to mid socio-economic neighbourhood would give a price in australian dollars of roughly $250,000 – to $300,000 purchase. After the considerable renovations again similar to your bids you would gain an approximate rise in value of $30,000.00 to $55,000, after having spent approx $25,000 to $30,000. Unfortunately results like these do not provide the returns and gains in value that you are experiencing. This scenario is very similar in suburban Australia, and becomes much worse the closer to the large city centres you get.
Do you have ANY help or ideas as to help maximise or vary the game plan? Is wholesaling perhaps still an option? I understand this is out of your field of expertise however any assistance will be greatly appreciated.
Many thanks,
Miklos Campbell (Mickey)
Wholesaling is actually within my scope of expertise and I recommend it as a last resort. Rentals provide better long-term wealth potential. The business model is:
1. make sure it cashflows
2. make sure it has equity
If you’re not finding those in your neighborhood, don’t compromise these principles. You will regret it. Either look elsewhere or try something different.
You might try advertising for deals. Put up signs, send out mailers, door hangers, etc. That might get you closer to a deal.
Laws of economics dictate that a certain percentage of homes in an area should cashflow in a healthy economy. Areas that are over-inflated tend to crash, as they did here in California. We generally have to look to the midwest and south to find the type of deals we are doing. At least get away from the big cities.
Brian,
I find that managing rentals take alot of my time and energy. Can you provide rental tips that minimize the headaches that can follow rental properties?
Yes, the best strategy we use is: best product/best price to attract a large pool of potential tenants. Then, screen using strict guidelines.
If you fix everything before you rent it, you won’t be hassled all the time with maintenance issues.
Build up to 5 or 10 houses and then sell them for a multi-family property.
This post is an eye opener for me. This will motivate me to finally invest my money in real estate. But I have to study more on the nitty-gritty side of real estate investing to avoid losing my hard-earned money.