Jump in and learn and get started even if we lose money?

Question

I've been researching buying something for years (about 4 now) and have yet to pull the trigger. There is always a reason and in my area (Massachusetts) prices have stayed very high so that makes it worse. My wife also isn't full onboard as she's very risk averse and she's worried that if the property needs work or is far away my time will be stretched even further which isn't great for the family.

Anyway, because we know nothing besides what we've read, because we're always talking about the "What ifs", I'm ready (and I think I convinced her) to just go for something that we feel safe owning, that's easy to start (low maintenance) and by my calculations at most we'd be on the hook for maybe $4k/year if renting didn't go so well. This is by far my ideal purchase but I feel that since she's interested in it, that might be a good way to get our feet wet and help us understand everything before jumping too far in.

As long as we can limit our risk is there any problem diving in like this knowing that there is a chance we'll lose money?

Steve Vaughan · Answer

It's not ok to 'lose money ' investing as Joe so clearly states. If you paid retail , put 20% down on a 30yr and are still coming out of pocket to feed it, you have a dog.  Nah, that's an insult to dogs.  You have an alligator.

Losing money meaning what? Negative cash-flow? I'm in a more expensive market as well and 2 of mine break-even or have slightly negative cash-flow, but I'm far from losing momey.

I purchased at 80% or less of FMV.  Always buy at a discount in expensive markets. Equity capture is how we 'make money'.  Find a seller that has a problem and solve it. Running around with an agent looking at HGTV houses gets you nowhere.

Debt service plays a huge role in cash-flow.  I may break even or lose $200/mo,  but my 2 that 'lose money '  pay down over $1300/mo each on 15 and 10yr terms. Factor in principal paydown when analyzing whether you're losing money or not.

Joe Villeneuve · Answer

Never go into any business venture, specifically an investment, knowing you'll lose money.

You're so wrapped up in getting your first property, that you've lost sight of the reason to invest.

The goal isn't to collect properties...it's to collect money...more than you started.  Intentionally losing money isn't a legitimate conscious decision....ever.  All it does it put you further behind where you started, and places you at a point where you have less resources available to get out of the negative.

Profits are made after, and only after, you have recovered all the cash you have put into a deal.  Losing money only puts you further away from making a profit...and to do that, as a willing, conscious decision, is a decision you will regret down the road.

There are no mulligans in REI.

...and to rationalize it by saying you are learning is not (I'm trying to be nice here) smart in any way.  If that were true, then I want to meet the person that lost the most money as a REI.  They must be a F____n Genius.

Margaret Johnson · Answer

My point wasn’t in regards to this specific deal. When a person has spent  years over analyzing all the reasons why they should not invest in real estate, out of fear, the problem is the way they are looking at it. Fear of failure is what is preventing this person from getting started in real estate. But there is another fear That I would have and that would be the fear of not getting started in real estate, and missing the opportunity for financial freedom.

Joe Villeneuve · Answer

The trouble with rationalizing a bad deal into a good one, based on a target of long term goals, is the path getting to those goals.

Joe Villeneuve · Answer

OK.  You say you're not going in expecting to lose money, but in the same sentence you say that it is a possibility...and that you are (by not saying no at that point) accepting it.  That, in the end, is the same thing.

Nail down the "estimates", into facts.

Saying the deal will never lose money as long as the mortgage and tax benefits are still there is just rationalizing losing money.  Tax benefits recover money spent...but not all of it.  Money not recovered is still a loss.

Cash flow negative is a constant, accumulating loss...that as it adds up (see subtract), it just puts you more behind.

Cash flow negative means you are paying your tenants to live in your house, and you are paying the mortgage.  Doesn't matter how you rationalize this, it's still a loss.

Positive cash flow means the tenant is paying you to live in the house, and THEY are paying your mortgage for you.

How does a short sale of one of the units give you built in equity?

Ryan Detzel · Answer

Sorry, I wasn't clear enough. I'm not going into this expecting to lose money, the analysis I have shows it will cash flow but there is a large variable of vacancy and no matter what research I do it's hard to nail down or say I'll be able to reach what my goal are and this is why my estimates shows the "worst case" is -$4k if we can't rent it like we're expected to.

With that though, since we're new if it doesn't cash flow then we'll adjust, learn, and try to make it cash flow but who knows...

Here is my original post asking about the numbers: https://www.biggerpockets.com/forums/530/topics/714890-how-to-calculate-vacancy-for-a-seasonal-place?highlight_post=4218607&page=1#p4218607

The deal would never lose per say as the mortgage and tax benefits are still there, I'm referring to mostly cash flowing negative if we don't meat our occupancy goals. We're also looking at getting in $20k (10%) under market because there is one unit that is a short sale so we already have built in equity.

Margaret Johnson · Answer

There is never going to be 100% certainty in anything.  There is always a good excuse if you let fear be the decision maker.

Try not to look at the money that you risk by doing the investment. Try looking at the money you risk if you don't.

Real estate has the highest return on investment of any form of investment.  With leverage you can buy a property for just the down payment and get the tenants to pay the mortgage for  you while you cash flow over and above that. There is no other kind of investment that has this kind of opportunity.

Think (and talk to your wife) about your long term goals and how you will feel if you DON'T do this and how much money you will lose by playing it safe and never investing in real estate.

Mike Fontaine · Answer

@Ryan Detzel whatever your going to do I would suggest doing your homework. Have you gotten an idea what it can rent for? Have you gotten an idea of what maintenance it needs? Where is it and what is the demographic like? If your going with a lower risk but are positive that you can make it a cash flowing property if everything was accounted for then I dont see any problem with a smaller investment to get your knowledge foundation.

Jump in and learn and get started even if we lose money?

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