Explain snowballing to a newbie

Buying & Selling Real Estate
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Explain snowballing to a newbie

Jennifer Bowen
Montgomery, AL · Member since 2016 · 25 posts · 3 votes

Hi all,

I'm interested in buying vacation rentals for cashflow. But I'm having trouble wrapping my head around how to snowball this into something sustainable. 

I make very little money. No problem. I live frugally and have a decent down payment saved up. But, for instance, using the $4,200 a year earned on the Bigger Pockets "Real Math" example (https://www.biggerpockets.com/renewsblog/2013/01/1...), how do you turn $4,200 a year into something you can live off of? 

Cashflow is a wonderful thing. I have realized the wisdom of acquiring assets that put money in your pocket instead of simply saving. But it also took me years to save my down payment. It seems like it would take me quite a long time to save up for a second property and snowball this thing.

If I'm getting $4,200 off a $100,000 investment, how is that different from getting a 4% dividend stock? 

Can someone help me put the pieces together? 

Glad to be here. Hope to learn a lot from you - and eventually give back. :)  

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  • Mark Nolan
    Professional · Carlsbad, CA · Member since 2012 · 12k+ posts · 1k+ votes
    10y

    @Jennifer Bowen

    Welcome to Bigger Pockets. It is a good community to network and learn about all aspects of real-estate investing.

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  • Jennifer Bowen
    OP
    Montgomery, AL · Member since 2016 · 25 posts · 3 votes
    10y

    Thank you, Mark. I look forward to learning from everyone here. :) 

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  • Dustin Heiner
    Rental Property Investor · Nashville TN · Member since 2014 · 56 posts · 30 votes
    10y

    Hi @Jennifer Bowen!   Glad you are at BP!

    There are many more advantages to rental properties than just the cash flow every month. I have seen 5 big ways rental properties make you money.  To answer your question about stocks and the rate of return, see this example below.

    1. NET PROFIT VALUATION

    Step 1 – Calculate gross rents, both yearly and monthly.
    Step 2 – Add up in total all variable expenses, both yearly and monthly.
    Step 3 – Add up in total yearly mortgage payments.
    Step 4 – Deduct variable expenses and mortgage payments from your gross rents.
    Step 5 – Take your net figure and divide it by your down payment. This will give you a percentage figure that will give you a rate of return on your invested cash.

    Examples:
    $ Earned / Down Payment = Return On Investment
    $500 / $2,000 = 25% ROI
    $4,000 / $2,000 = 200% ROI
    $5,000 / $2,000 = 250% ROI

    So your down payment is what you use as your basis for the ROI, not the total value of the property. Just like how you buy a stock for $15, that is your total $ invested into the investment that comes out of your pocket.

    There are 4 other big ways you can make money with Rental Properties.

    Send me a PM if you want to know more about it.

    Hope it goes well!
    Dustin

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