Interested in real estate investing, I have questions!

[Jonny Bursa]

Hi everyone.

First of all, the main concern I have is how long it takes to make ROI. It like typically it takes about 7-10 years from what I'm learning. That's a long time! How possible is it to find deals which give ROI in, say, 5 years? Apart from finding high cap rates and being okay with being in debt up to your eyeballs, are there any other methods of growing quickly?

I hear a lot that real estate can be a nightmare because of tenants always needing repairs or having complaints. Is that the case?

I have almost $20k I'm willing to invest in real estate. Is that enough and what would be a good first investment with that amount? I am going to talk to my bank soon about what kinds of loans I can take.

Thanks for any help and advice!

[Hattie Dizmond]

I think you're using terms you're not familiar with. ROI is a rate of return, not a payback period. Although, a higher ROI should mean a shorter payback period.

Every deal is different. Every investor has different goals and criteria for evaluating deals. If you are focused on the payback period of an investment, then set your requirements and evaluate your deals against that criteria. If your don't know how to calculate payback period and other profitibility indicators like IRR and NPV, just Google them.

[Jonny Bursa]

Originally posted by @Hattie Dizmond:

I think you're using terms you're not familiar with. ROI is a rate of return, not a payback period. Although, a higher ROI should mean a shorter payback period.

 Hattie, thanks for correcting me. I have heard that term "return on investment" used as a time period by which you break even. My goal would be to reach that point as quickly as possible so I could start generating cash flow.

[Hattie Dizmond]

You can generate cash flow from day 1.  Again, you're focusing on terms and measurements you don't understand. Cash flow is simply does the money coming in equal more than the money going out, including  reserves?   If it does, you're cash flow positive. 

If you're looking for how quickly that cash flow will payback your initial investment of liquid capital, that's IRR.

There are a ton of ways to evaluate an investment. There are any number of "rules" used to gauge it, which are described here on BP. There is the CAP rate. However, that's better applied to MFR than SFR. There are more traditional capital invest calculations like NPV and IRR. There is CoC and ROI. The list is long.

Determine your personal goals. If you want to invest $20k and have it paid back in 5 years, then you need a net positive cash flow of $333.34/mo. That's a really simple calculation that doesn't take into account the time value of money or lost opportunity cost. But, it gives you an idea. 

[Scott Schultz]

Originally posted by @Jonny Bursa:

Hi everyone.

First of all, the main concern I have is how long it takes to make ROI. It like typically it takes about 7-10 years from what I'm learning. That's a long time! How possible is it to find deals which give ROI in, say, 5 years? Apart from finding high cap rates and being okay with being in debt up to your eyeballs, are there any other methods of growing quickly?

I hear a lot that real estate can be a nightmare because of tenants always needing repairs or having complaints. Is that the case?

I have almost $20k I'm willing to invest in real estate. Is that enough and what would be a good first investment with that amount? I am going to talk to my bank soon about what kinds of loans I can take.

Thanks for any help and advice!

 Are you looking for returning your initial $20K or are you looking for a % return on the investment like a index fund you purchased for $20K giving you 6% return year after year. most of us i think are looking for the asset to "throw off cash" meaning getting the % return on the initial investment, hoping there is market appreciation and later selling or owner financing the house out when you are done with it to get the initial investment back out, like selling the index fund after the value has increased, and gave you a return. 

[Jonny Bursa]

Originally posted by @Hattie Dizmond:

You can generate cash flow from day 1.  Again, you're focusing on terms and measurements you don't understand. Cash flow is simply does the money coming in equal more than the money going out, including  reserves?   If it does, you're cash flow positive. 

 Right okay. I mentioned getting cash flow later because, first of all I would need to take a loan, 20k wouldnt' be enough on its own I don't think. So I was considering "cash flow positive" after the loan is paid back. But in any case, yes I need to do more research.