Interest vs no interest

[Aaron St. Clair]

Hey guys, I have been learning about REI and in all the bigger pockets it talks about mortgages. Anyone who knows almost anything about Dave Ramsey knows that he is a big advocate of not buying anything except maybe your first home and getting into debt for it. He has all the numbers and can show you how purchasing a home on a 30 year mortgage is wasting 100's of thousands of dollars because of interest, etc. My question is, how do you look? I have hardly heard anyone talk about interest, and maybe this is because I just started paying attention, but do you take this into account when figuring your deals? Is it shoved in with all the other parts of the equation to make a whole and everyone except me understands this so then you compare COC and cash flow against the whole equation? What would the COC and cashflow look like without interest? How do you balance not waiting 30 years to be able toa afford getting started vs going into debt? Just an interesting thought experiment that popped into my head and I would love to hear everyone's thoughts!

[Nathan Gesner]

I regularly argue that Dave Ramsey provides excellent, sound, time-proven financial advice that everyone should apply to their personal finances. Business and investing is very different.

The interest is part of your expenses. Real estate investing, in very simple terms, follows this basic formula:

Income - Expenses = Profit

If you own a single-family home and the rent income covers all the expenses and leaves you with $200 profit each month, that's called your "cash flow" and the property is a good investment. If your expenses are more than your income, then you will lose money each month and it's a bad investment.

Here's some basic starter advice:

1. Start with BiggerPockets Ultimate Beginners Guide (free). It will familiarize you with the basic terminology and benefits. Then you can read a more in-depth book like The Book On Rental Property Investing by Brandon Turner or The Unofficial Guide to Real Estate Investing by Spencer Strauss.

2. Get your finances in order. Get rid of debt, build a budget, and save. The idea that you can build wealth without putting any money into it is a recipe for disaster and the sales pitch of gurus trying to steal your money. A wise investor will not try to get rich quick with shortcuts. If you can't keep control of your personal finances, you are highly unlikely to succeed in real estate investing. Check out my personal favorite, Set For Life by Scott Trench , or The Total Money Makeover by Dave Ramsey.

3. As you read these books, watch the BiggerPockets podcasts. This will clarify and reinforce what you are reading. You can hear real-world examples of how others have built their investment portfolio and (hopefully) learn to avoid their mistakes.

4. NETWORK!!! Get out of your comfort zone. Stop hanging out with your deadbeat buddies that spend all day drinking, talking sports, and otherwise wasting away. Go to BUILD YOUR TEAM at the top of the screen and look for local investors or meetups in your area. You can also find real estate investing groups through meetup.com, facebook, or a Google search. Birds of a feather flock together!

5. Now you need to figure out how to find deals and pay for them. Again, the BiggerPockets store has some books for this or you can learn by watching podcasts, reading blogs, and interacting on the forum. A handy search bar in the upper right makes it easy to find previous discussions, blogs, podcasts, and other resources. BiggerPockets also has a calculator you can use to analyze deals and I highly recommend you start this as soon as possible, even if you are not ready to buy. If you consistently analyze properties, recognizing a good deal will be much easier when it shows up. Find Brandon's videos on YouTube for the "four square" method of analyzing homes and practice. It doesn't take long to learn how to spot a good deal.

6. Study the market. You can learn to do this independently or get a rockstar REALTOR to lead the way. I highly recommend a well-qualified REALTOR who works with investors and knows how to help you best.

7. Jump in! Far too many get stuck in the "paralysis by analysis" stage, thinking they just don't know enough to get started. You could read 100 books and still not know enough because certain things must be learned through trial and error. You don't need to know everything to get started; you need a foundation to build on and the rest will come through experience and then refining your education.

You can build a basic understanding of investing in 3-6 months. How long it takes to be financially ready is different for everyone. Once you're ready, create a goal (e.g. "I will buy at least one single-family home, duplex, triplex, or fourplex before the end of 2019") and then do it. Real estate investing is a forgiving world; the average person can still make money even with some big mistakes.