$92 Million in 25 years to good to be true?

Question

I am currently reading "The complete guide to buying and selling apartment buildings" by Steve Berges and he makes the argument that if you buy one apartment complex every year and flip it into a larger complex (I am assuming 1031 Exchange since he doesn't account for taxes) for 10 years and then hold the 10th complex and have it paid off in 25 years you will be better off then if you purchase 1 apartment complex every year for 10 years and then hold them, not just by a little bit but over $90m!! I have always been a buy and hold guy, because I want to retire young and enjoy the rest of my life. This chart made me rethink my avenue. Its sort of similar to Brandon Turner's "7 years to 7 figure wealth" which I think was awesome and am going to print and hang in my office.

That being said the author goes on and says lets say you cant create 20% a deal and can only do 15% he said its still around $27m! Steve said 20% is easy and in the 7 years to 7 figures Brandon advises similar statements (purchase at 20% discount and increase profit by 10% over the year through forced appreciation).

1) Does this seam realistic? My question, would be why stop after 10 years? Let just say someone wanted to retire in 10 years...is this realistic? or even if someone's goal was to retire on $2m they could essentially flip for 5 years and be set with a $3m property and live on cash flow and then after 25 years it gets better.

2) Can this be replicated in SFH? for example buy one house at 100k and sell for 120k after a year by forcing appreciation and 1031 up to 200k etc. or do several 100K homes at once?

3) What are your thoughts? let me know if you cannot see the pictures.

Buy one property every year for 10 years and hold them all:

VS. Buy a property and flip up every year and hold the last one after 10 years:

-John

Christopher Brainard · Answer

Hi John,

Personally, I think both scenarios are rather optimistic and while the math adds up just as the author says, reality is often very different from coursework.

Based on what I see, Scenario 1 expects you to have your property's value increase by 4% a year, every year.  Scenario 2 assuming that you make 20% on every deal you do. Having lived through the last real estate bubble, neither of these cases can be guaranteed. Real estate just doesn't work like that and should be judged/evaluated on a case by case basis looking at the associated numbers. Sometimes it makes sense to buy and hold, sometimes to flip, I don't think there is a catch all solution. Now, if you gave me assurances that the Scenario would hold true for 25 years, I would pick #2 based on the numbers.

Additionally, neither scenario takes into account any cash flow (Negative or Positive) you make from renting the properties every year (which depends on the property in question) and I've found it very difficult to find great deals on apartment complexes, simply because there aren't that many out there to choose from. Finding a good deal on a SFR is much easier to come by, so I've been picking those up, but keeping an eye out on the complex I want to buy.

I don't see any reason this couldn't be replicated using SFR's, however, the more expensive the SFR you buy, the harder (generally speaking) they are to sell. This is how I built up my wealth investing through rehabbing. Started small, as my balance sheet grew, moved to larger more profitable flips.

And for the record, it took me 16 years of working a full time job and investing on the side to achieve sufficient wealth to retire. I'm apparently on the slow train according to most of the Guru's, but sometimes the slow route is the safest route. In the scenario above, if your vacancies rise and you can't pay your mortgage on the one property you own, you're in big trouble.

-Christopher

$92 Million in 25 years to good to be true?

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