Am I a future real estate mogul? This seems too easy...

Am I a future real estate mogul? This seems too easy...

Miami Beach, FL · Member since 2013 · 1 post · 0 votes

Hello,

My name is Kristopher. I’m 22 and live in Miami beach, FL with my parents and girlfriend. I am a college student studying Finance, and I also have a part time job at Bank of America. My parents have owned their own business for 25 years and have become successful. My dad is aprocaching the age of retirement now, and has about 1million in savings. He also profits about $15,000 a week from his business. He plans to either sell his business soon or rent out the property that its on, which he also owns. It is a 2 acre industrial land.

About a year ago, I began speaking to my father about investing in real estate. Rather than just buying and selling for a quick profit, I wanted to get into rental income properites in order to create an income for us. I had always read about these millionaire land lords that started off young and are now extremely successful, all from rental properties, and this business always intrigued me. With the amount of cash my Dad had put away, I knew we would be able to get very good deals in certain areas of Miami that are known for high rental rates. Plus, there are always tons of foreclosures and REO's on the market in Miami. After heavily researching a particular up & coming area that I really liked, we purchased our first property in January of this year. I was very patient and made sure I only pulled the trigger on too-good-to-be-true deals, and I have found them. Today, we own 3 properties in total and plan to keep buying. All properties are within 2 miles of eachother. I've placed each property under an LLC that I formed with my father. We both own 50% of it. I have managed to find tenants for each property quicker than I thought. All 3 properties have been bank owned REO's. Here is a summary of each propery:

Property 1

2 story Duplex

Price - $160,000

Purchased: February 2013

Monthly rental income - $2600 ($1,300 per unit)

Property 2

1 story triplex

Purchased: March 2013

Price $155,000. (115k purchase price with $40,000 in renovations)

Monthly rental income $3000 ($1100 each for 2 units, and $800 for 3rd unit)

Property 3 (incredible deal)

2 story triplex

Purchased May 2013

Price $172,000

Monthly rental income: $3450. ($1250 each for 2 larger units and $950 for smaller unit)

To sum everything up, we have invested $487,000 and we are making $9,050/month in rental income. That is $108,600/year, creating a 22.2% annual return on investment. We bought all the properties cash, and each one took less than 3 weeks to find tenants for. These homes are in a very up & coming area, and are currently worth about 25% more than what we paid for them (there are smaller properties in the same neighborhood selling for much more than what we paid). We were able to get these deals because we paid all cash and because they were bank owned properties. In total I will be paying about $10,000 a year in property taxes.

My father is not really involved in the business (except for paying for everything lol) but I am the one who finds the properties, closes the deals, communicates with listing agents, manages properties, finds tenants, hires contractors for renovation/repairs, etc.

Are numbers like this typical in the real estate market? To be honest, this seems too easy. I plan to purchase a property once a year for as long as I can, and just sit on them and rent them out. I wrote this to get some feedback and maybe some tips on how to stay successful in this business and what I can do to maximize profits. Even though I am only 22, I already own 3 properties and I consider myself very skilled at finding a good deal and knowing when to pull the trigger on something.

Thanks

-Kris

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Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
13y
Originally posted by Kris R.:
Hello,

My name is Kristopher. I’m 22 and live in Miami beach, FL with my parents and girlfriend. I am a college student studying Finance, and I also have a part time job at Bank of America.

To sum everything up, we have invested $487,000 and we are making $9,050/month in rental income. That is $108,600/year, creating a 22.2% annual return on investment.

At first I was like "he is a student of finance, how can he not understand that money lost to expenses does NOT count toward the return on investment?" Then I saw that you work at Bank of America and it all made perfect sense.

See this reply in the discussion

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  • Daniel DietzPro Member
    Rental Property Investor · Reedsburg, WI · Member since 2011 · 1k+ posts · 857 votes
    13y

    Kris,

    One other thing that a previous poster mentioned too is to think of using leverage. If you run the numbers through the calculator I posted above using 25% down and 75% loan, the returns are MUCH different, even after figuring payments.

    It might look like this;

    • 121K Investment
    • 108K Income (90% Return)
    • - 50% Expenses
    • = 54K Operating Income (45% Return)
    • - 5K Return on Father's Investment (@4%)
    • - 29K Payments (@5%/20Years)
    • = 20K Net Income (16%)

    Just food for thought. Also keep in mind you could buy 4 times as many properties for the same cash. As far as 'appreciation', I think of that as icing on the cake ( I plan to hold mine at least 15-20 years)

    Dan Dietz

  • Real Estate Investor · New York, NY · Member since 2012 · 210 posts · 15 votes
    13y

    Those who hate on the kid for his circumstances are harsh. He has invested for 20% gross rental yields in presumably decent areas that can appreciate for the long-term. I wish I had his properties.

    Further, people seem to hate the kid for working at BofA, when all that matters is he has bought foreclosures from BofA... much like many folks on this forum.

    The self proclamation of being a real-estate mogul was cheeky -- but the response to this cheekiness is a bit harsh (in my opinion).

  • Nicole A.Pro Member
    Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
    13y

    I agree that some are being a bit too harsh. Yes, he has a lot to learn, and we can't assume his tone as arrogant. He could have been cheeky. I notice he has not responded back...I was looking forward to his response regarding long-term plans, learning about all the other expenses, and his thoughts on the suggestion of buying lots more property by just doing down payments rather than buying a few outright.

  • Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    13y

    Welcome to BiggerPockets, Kris. Your numbers on your rentals seem pretty good. You can't do as well in some cities, but you can do better in other cities.

    There has been a lot of good input written above, some of it critical, but keep reading and taking it all objectively. I'll add one thing. There is a danger to having a lot of cash to invest without a lot of experience. You can buy too much, too soon, and later regret what you bought. If you want to get out of those properties while things are good, that's fine. However, if you want to sell in a downturn, you might be stuck with a substantial less than ideal portfolio.

    Don't be in a rush. You have many years to become a mogul. How about listening to all the BP podcasts before you do your next deal? That will open your mind up to many options you didn't know existed.

    The real economic engine to your machine is the cash your dad's business is throwing off. Why not look into running/owning/growing that business where your dad can mentor you?

  • Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    13y

    just keep in mind, we're on an upward market swing and today everything looks good. RE cycles normally last several years, and the key is persevering when the market turns. You'll inevitably be challenged with vacancies/worse tenants, lower values, etc. It's less fun then (trust me :)

  • Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    13y
    Originally posted by Amit M.:
    just keep in mind, we're on an upward market swing and today everything looks good. RE cycles normally last several years, and the key is persevering when the market turns. You'll inevitably be challenged with vacancies/worse tenants, lower values, etc. It's less fun then (trust me :)

    Reminds me of the stock market in 1999, when many of the noobs thought it was easy, they were geniuses, and they were months away from retiring on the beach. I was certainly influenced by the hype. The lesson has stuck with me.

  • Real Estate Investor · New York, NY · Member since 2012 · 210 posts · 15 votes
    13y

    @Jon Klaus where do you think we are in the cycle. Agree, 2009 was anomalous. I am caught off guard by how vicious past 12 months rally has been. I'm in market for 1-2 more, but given how I passed on so many properties at $250K (which are now $375K) I fear will be tough to find 1-2 more in my target market.. need to find a new market.

  • Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    13y
    Originally posted by Arjun K.:
    @Jon Klaus where do you think we are in the cycle. Agree, 2009 was anomalous. I am caught off guard by how vicious past 12 months rally has been. I'm in market for 1-2 more, but given how I passed on so many properties at $250K (which are now $375K) I fear will be tough to find 1-2 more in my target market.. need to find a new market.

    In my opinion, the fact that we've (the US) built far less housing over the past 5-6 years than in decades, there is substantial legs to this phase of the cycle. As always, all real estate markets are local. Some will do better and some will do worse. I like the areas with the fastest job and population growth.

  • Investor · Los Angeles, CA · Member since 2013 · 231 posts · 260 votes
    13y

    To answer the original question.

    Am I a real estate mogul? - Yes, given the properties you have and them being held without debt.

    Is it this easy? - with all cash it certainly can be.

    Given that, the poster still has a lot to learn. Expenses for one thing as posters have pointed out.

    The second is not giving out too much financial information both for safety and for just general humility and trying to relate to the audience a little.

    The responses may have been a bit harsh, but the original tone came off as a little brash. The poster is young so I'll give him a pass, so hopefully he can take the responses as a learning experience.

    I will give him credit for getting out there and getting it done. One thing not talked about too much in this country is that there is going to be a huge transfer of wealth from one generation to another over the next 25 years, which will be the largest in human history. In expensive markets like California, this is even more pronounced as property gets transferred down. Even a relatively modest family with no savings may pass down a house they bought for practically nothing many years ago and may be worth $500k or even much more.

    Given history of inherited wealth, many people will waste these funds and that is sad. Buying income property is certainly not a bad way to go, but it takes a little work, which many don't want to do.

  • Springfield, OH · Member since 2012 · 155 posts · 50 votes
    13y

    Hi Kris,

    Generally speaking, it is very difficult to find rent-to-value numbers like that in Northern Virginia (Fairfax County). Instead of your $2,600 for 160K, ours are about the opposite...you'd be looking at $1,600 in rent for a $260,000 property. Which is why many investors in our area are at break-even or slightly negative cash flow (assuming 20% down, market rate, 30 yr term).

    Of course, it depends on where in NoVA you are buying (every neighborhood varies slightly) and what kind of deal you can get, but the market here is very competitive and inventory is low. It really comes down to where you are sourcing your deals. In any case, a deal with numbers similar to yours is rare.

    I would agree with others that is always a lot to learn in this business. That said, rock on! Successful entrepreneurs are resourceful and know how to take advantage of opportunity. There are plenty of people who have financial resources who DON'T take the initiative to create something from them.

    I certainly didn't start out with any advantages, but I don't believe your availability to funds and access to a growing market as a young person limits my potential in any way. Just means I have to work harder to find cash & deals:). In the end, we all come to this business with strengths and weaknesses. The whole point is to maximize your strengths, which is what you've done. There will be plenty of time for you to overcome challenges and grow as a real estate entrepreneur. Stay humble, stay hungry, keep moving. Celebrate your successes and reach out for help when you need it.

    Best of luck.

    Jessica

  • Sacramento, CA · Member since 2013 · 58 posts · 9 votes
    13y

    @KR since you must be a rocket scientist or something can u give this newbie advice?

  • Nicole A.Pro Member
    Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
    13y

    I think we need to tone down the negative posts in here...

  • Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    13y
    Originally posted by Nicole Williamson:
    I think we need to tone down the negative posts in here...

    Agree. Let's encourage our new members/investors.

  • Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
    13y

    yeah, be nice to the mogul.

  • Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
    13y
    Originally posted by Nicole Williamson:
    I think we need to tone down the negative posts in here...

    I don't think he's coming back anyway, it seems like he probably just wanted to brag about his moguling.

  • Investor · buffalo, NY · Member since 2008 · 354 posts · 23 votes
    13y

    @Kris R.

    @Kris R.Congrats! you are off to a great start. You have a big advantage out of the gate compared to other people (using OPM in this case your dads) Just keep a leveled head and you be fine.

    all the best,

    Mike

  • Dawn AnastasiPro Member
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
    13y
    Originally posted by Patrick L.:
    I don't think he's coming back anyway, it seems like he probably just wanted to brag about his moguling.

    Is "moguling" a word? In any event, he certainly did stir up a lively debate!

  • Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
    13y
    Originally posted by Dawn Anastasi:
    Originally posted by Patrick L.:
    I don't think he's coming back anyway, it seems like he probably just wanted to brag about his moguling.

    Is "moguling" a word? In any event, he certainly did stir up a lively debate!

    I'm pretty certain it isn't a word but it seemed like a fairly accurate descriptor. He definitely got a great response considering he provided no follow up posts.

  • Real Estate Investor · chicago, IL · Member since 2012 · 1k+ posts · 231 votes
    13y

    your father's return of 22% is actually 11% if you and him are splitting the profits.

    people on here are ignoring the SUBSTANTIAL increase in miami. you will be fine. just sell it when the market comes back, if you want.

  • Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    13y
    Originally posted by Scott W.:
    people on here are ignoring the SUBSTANTIAL increase in miami. you will be fine. just sell it when the market comes back, if you want.

    Do you mean appreciation? How much more do you foresee in the next year or two?

  • Salem, OR · Member since 2013 · 8 posts · 0 votes
    13y

    You will grow faster using OPM and putting the least amount of money down as you can.

  • Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
    13y
    Originally posted by Patrick L.:
    Originally posted by Dawn Anastasi:
    Originally posted by Patrick L.:
    I don't think he's coming back anyway, it seems like he probably just wanted to brag about his moguling.

    Is "moguling" a word? In any event, he certainly did stir up a lively debate!

    I'm pretty certain it isn't a word but it seemed like a fairly accurate descriptor....

    actually it is

    Skiing term but maybe appropriate here for hitting bumps on the way down like we all have !!!

  • David GreeneBusiness Member
    Real Estate Broker · San Francisco Bay Area, CA · Member since 2012 · 225 posts · 266 votes
    12y

    Kris,

    First off, congrats. It sounds like you've done awesome so far. I don't think any of the naysayers can really argue with your numbers.

    Second off, many people have talked about your lack of leverage. Here's something nobody seems to have mentioned yet. If you don't need the money for additional deals, you aren't missing out on the lack of leverage. If you are going to purchase one property a year, and have plenty of cash, don't worry about taking a loan out on your properties until you actually need the money for something else that will net you a bigger return.

    Third off, your real question seemed to be "This seems to easy to be true, am I missing something?". To that I would say, a lot of your success is honestly likely due to timing of the market. Not to take anything away from your analysis which seems spot on. When I first got started, it was in 2008-2010. I was so worried about the entire economy spiraling into a full depression that I didn't want to buy too much. In retrospect, I should have been scooping up all that I could. In that market, it was actually really hard to miss. So to sum it up, give yourself credit where credit is due, but don't expect to continue finding deals like that. As more and more people get into REI in your area, those deals will start to disappear. But overall, great job bro!

  • Real Estate Investor · Boston, MA · Member since 2008 · 102 posts · 10 votes
    12y
    Originally posted by @Bill Briscoe:
    I couldn't get past your first paragraph. Your dad makes $720k in profit per year but has only saved $1mm for retirement yet is considering retiring already?
    If I had a gig like that I'd keep working it until I had a much large sum saved up.

    Yes, something is wrong with the numbers.

  • Real Estate Investor · Irvine, CA · Member since 2011 · 189 posts · 33 votes
    12y

    People can spend a lot of money, especially when you make that much and live in Miami - trust me, I know.

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