All Forum Posts by: Bryce Y.

2. This structure could leave the investor short-changed if you are doing a deal with a lot of value-add. He is effectively selling you equity at the original price, but the equity you are receiving is at a higher value.

Do you have proforma numbers? What kind of IRR is the investor looking at? Unless it's significantly more than 10%, I don't think it makes much sense to the investor, given he could just loan you money at 10% with much less risk.

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Perfect, thank you Guy!

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Hey Ryan,

The space for the number of days is applicable to the additional earnest money, or at least that's the way I interpreted it. "Buyer shall deposit additional earnest money of $___ with escrow agent within ____ days after the effective date of this contract."

But to answer your question I did not fill that in.

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Hey guys,

A couple days ago I got a house under contract. I am the seller. The buyer said they will deposit the earnest money the next day. It has been 2 days and the buyer is not responding. The contract reads, "If Buyer fails to deposit the earnest money as required by this contract, Buyer will be in default."

It doesn't address a reasonable timeframe. The option period is 7 days, and closing is in 30 days. At what point am I free to make a contract with another buyer?

Thanks.

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Heh, not looking to rock the boat. I was just curious how you arrived at the 10% number. Would the pref vary based on the projected ROE? I am pretty sure it does, just not sure exactly how. (I am assuming a catch up)

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Good discussion. What would your response be if a prospective investor asked you to increase the pref to say 12%? Assuming a GP catch-up and that the investment performs as expected, the returns would be the same, but would offer more security to the LPs.

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Originally posted by @Will Barnard:

Originally posted by @Bryce Y.:

Originally posted by @Will Barnard:

Case in point, even the most average of people paying full retail on 4 properties can be well ahead at year 10 over the option of investing in the S&P 500 Index (or in this case, something that actually beats that as I gave in this exercise.

Will, you are making some pretty big assumptions in your example, the most glaring being that the investor actually has the skill to pull off the RE investment. Any old joe can invest in the S&P - I don't think the same can be said for the RE side.

Another issue is the investment of time. In your example the S&P investor invests zero time (save for a few seconds of mouse clicks), whereas the RE investor must invest significant time managing his properties (or managing the PM), facilitating financing, bookkeeping/accounting, etc. And I didn't even include the time spent beforehand on education which would put him in a position to be able to successfully invest in RE in the first place.

The last issue is your assumption that both start with 100k. I know it's just an exercise but the reality is most street level investors don't have that kind of dough to invest. If you only have 10k, REI is completely off the table - not true for S&P. (Obviously I am talking about buying a 100k house with 25% down, not wholesaling or some other strategy)

So at the end of the day what you are really comparing is a completely passive investment vehicle to a pretty hands-on one, and I think everyone would agree that the latter should have higher expected returns. Which one is "better"? Depends on the person/situation.

Bryce, I was pretty much done with this thread, however, since you have maturely and respectfully pointed out some valid points, I will reply. First, please read in full detail what I posted. I was clear that the Red investor paid (full retail price" for all 4 acquisitions, so any moron (or old Joe) can do that. That makes the playing field equal between the two. Next point you made, the work involved in managing. You are absolute,y correct that RE requires time in management and accounting. That said, the expenses I deducted from the gross income includes a property manager and accounting costs, so the RE investor need only manage the property manager (maybe 4 hours a week for this small portfolio) and send and sign some papers to/from their accountant (let's call that another 12 hours per year) for a total of 220 hours annually spent. In my example, after 10 years, the RE investor made over $144,000 more which comes out to an hourly wage of over $65 per hour over 10 years (and is even greater after factoring in the fact this is tax free). Keep in mind that is tax free to the RE investor, while the stock investor would have a large tax occurrence and no portfolio remaining, only the cash, the RE investor retains a cash flowing portfolio with the option to 1031 into a larger asset earning even more income and having something to pass down to heirs.

I believe I was more than fair in the assumptions to keep them as apples to apples as possible. As to your last concern, you are also correct that the SM investor can start with only $100 if they wish, more difficult to do that in RE,now ever, it is also possible. I started with nothing and was able to acquire my first 7 rentals without using one penny of my own money. The stock investor can not do that. Remember, I was a rookie when I started, not the experienced investor I am today so if this college drop out can do it, so can any Joe.

Did I adequately answer your questions? If not, please point out anything I missed. Great questions by the way.

Point taken, though I still believe you are underestimating the skill and time investment needed to actually realize those returns from RE. Things like tenant screening, landlord/tenant laws, basic construction knowledge, neighborhood characteristics, effective use of leverage, etc are absolutely necessary to be successful imo, PM or no PM. All of the turnkey out of state investor horror stories should be a good testament to this.

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Originally posted by @Will Barnard:

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Front page of yahoo finance:

http://finance.yahoo.com/news/this-man-wants-to-teach-you-how-to-flip-homes%E2%80%94for-a--34-000-fee-150349468.html

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All Forum Posts by: Bryce Y.

Bryce Y. has started 23 posts and replied 299 times.

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