All Forum Posts by: Bobby Nilsen

Quote from @Evan Miller:

All of that analysis was only taking into account the gains she would realize on a sale. So I wasn't even including any money she put into a down payment when she purchased it. For example, if she put 20% down, that's another $110,000 which is just sitting there. That get's added to the denominator which decreases the return number even further.

Now factor in that she owns the house outright, and we have to include the full $550K in her capital equation, bringing her returns even lower per dollar invested. All of that only improves the case to sell and use the capital elsewhere. 

So instead of the apples to apples number being $565,000, we add in the $550,000 of equity that she already has by owning the house outright. Now the equation is as follows:

$565,000 (gains net of capital gains taxes and sales costs) + $550,000 (her additional equity in the house now that we know she owns it outright) = $1,115,000 of capital deployed in this investment.

Expenses are less because there is not mortgage payment, but we still need to allocate 30% to other expenses (property taxes, OpEx, CapEx, etc.). So let's say she's netting $21,000 in rent every year. That is still only 1.83% return. Some savings accounts pay that out right now, let alone a completely passive middle-of-the-road bond. If she took that money and put it in the right index funds she will likely get close to an average of 10% annually without having to manage anything.

This math ain’t mathin for me. 1.83% return is based on current value. Can’t really use that number because say the value goes down to 100k, now her return is 21%. I’m only using that extreme of a number to show that it’s calculated in a skewed way. 

The best way to calculate a return is COC, which would be about 3.8% if rented. If we calculate COC with it selling, no rents, it’s roughly 80%. And if we use IRR we’re at about 12% per year for the 5 years it’s been owned. 

If this were me and I sell the property, I would  buy a fourplex for 1.6m with 130k in rents. This is at market so not a tough deal to find. After 10 years it’ll probably double in value, I’m using $3m for easier math, with the way our financial system is going. With 68% down and those rents the COC is 197% and IRR is 14% per year now let’s say it sells for $1.9m we’re still at a 9.6% IRR and 105% COC. Any which way it gets sliced I’d say the real estate is much better and safer than going into a “safe” fund. The only better investment would be a 5% savings account and hoping it doesn’t drop.  

 

@Brandon Patrick I ask for a price reduction at any opportunity that makes sense, especially when I the buyer am the one in control. Worst thing that get said is no. So long as I have all my ducks in a row and I am not the one not abiding by the terms of the contract, the balls in my court. If I get a no to the price reduction, I’d ask for a notice to close and if they can’t close I’d move onto the next one. Or if it still makes sense then I can make a good decision on whether or not I still move forward. I send out notices not only to make sure the other party performs but also to show that I’m serious and at the end of the day not in need of the sale or purchase. When the other party doesn’t feel needed and they need to sell or buy they’ll be more likely to concede for their delays, issues, etc. It sounds like you’ve done this already but when I remove the emotion from my real estate decisions the decisions I make start benefitting me more.  

@Jonah Slove

Maybe you, Jonah, should get a prenup to protect yourself. Now that everyone should have a prenup and you'll get divorced scenario is out of the way so she/you should cover yourself is covered I'll answer as if this was me in her shoes. 

If marriage is near I'd wait and consider selling to get the $500k tax free, so long as you qualify. The exchange is great but just kicks the tax can down the road. Tax free money all day long, you're now playing with house money. I would not invest in Detroit unless you are from Detroit and know the area very well.  I would and do stay close to home in a decent sized city so you know and are familiar with your rental market. I'd get a few smaller sized properties 4 units or less so the property is more liquid, next thing you know you find out in a few years that this isn't your game and you want to change your investment strategy and if it's your game it'll be easier to cash out/trade up. In addition I'm guessing you're both W-2 employees, financing 4 units below will be a little easier. 

Don't scale too quickly, you're not going to miss the boat. Looking back a year and a half ago, people would now say you shouldn't have bought then. I  bought a few properties then, bought them right and still sold for a profit within the last few months even with the interest rates tripling. The best time to invest is always today, just buy right, don't pay market or over. You don't want to be in a position of I have to get this one, wait for or structure the right deal to make it good for you. Negotiate the right deal and you'll always be good. 

Buy and hold, you will most likely look like a genius in the next 20 years. As the late Will Rogers once said "Don’t wait to buy real estate. Buy real estate and wait." Enjoy the journey man and definitely enjoy the time with your fiancé and soon to be wife. Real estate is the best way to create a life to enjoy the most precious asset we all have, time.  Life is too short to worry about all the small stuff and nonsense the internet creates for us. Good book recommendations if you haven't read them; Medici Effect, 4 hour work week, F*ck your feelings.
  

@Doraly Mendoza I would love to chat with you more about how to get started with no money or experience. Have had people in your exact position start and be successful. 

@Michael Matesky You can pay for a lot of programs but it all comes down to implementation. You’re putting energy into finding out about a program why not put that energy into finding a deal. You find a deal and I’ll give you an education and profit. You spend x hours learning in a boot camp or I can help you with x hours of deal finding and getting a deal. You’ll make money this way and can find out if you really want to do real estate without having to spend a dime. Would love to chat more if you want. 

@Bryan Odom You just did it. Would love to chat with you about real estate. Have done quite a few deals in the Bay Area. Please reach out and we can chat about getting a deal done. 

@Khemraj Sarju Jr.

Curious what you could refi a fourplex for?

All 2/1’s gross rents about $11,500 
Purchased two weeks ago for $1.325m

Loan $1.19m

Taxes $15k

Insurance $2k 

Any other info needed let me know. Have 4 other properties we need to refi as well. 

@George Plasencia Many ways to get started, but a few more questions should be answered before how do I start a fund. What's your goal? Please reach out, love chatting real estate.

@William Kulow Always up to chat, please reach out if you want.

@William Kulow Good Luck. Financing is not what it used to be, get ready for the fun. I'd start with Zillow, if that works cool.

Reach out to a few brokers, banks and credit unions. After that you'll probably just be getting the same deals from different people.

Try to get as minimal prepay as possible that makes sense so you can refi without having to pay up. 

Don't get sold on rates and fees that seem to be too good to be true. Someone tried pitching me a lender that was this and the spidy senses went off, asked about McMann financial on bigger pockets and they took a lot of peoples money.  

Refi appraisals don't seem to be as aggressive as purchase appraisals. That's always fun when you have run your own appraisal and you think you have a conservative estimate and the appraiser comes in lower.

Get ready for the bait and switch, if it doesn't happen cool, but expect the unexpected.