All Forum Posts by: Brandon Wong

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Hello All,

I'm not sure how much attention this thread is going to get this late; but, I'll give it a shot anyway!

Straight to the point summary:

I'm about to purchase a 3-4 bed & 2-4 bath house in Orange County area. I'm looking into leasing on a room by room basis. A property manager advised me against leasing on a room by room basis (something about not being able to have multiple leases on one property). Apparently it's extremely difficult to evict a person even if I am living in the property. Does anyone have experience with having/leasing to roommates in their primary house? Are there any tips/advice they can share?

I have also reached out to multiple RE lawyers to try and set up a consultation appointment, does anyone here have any questions that would be important/helpful to ask an RE lawyer? I will document/take notes on my session and share with the community.

Assumptions:

My target demographic: College students/young professionals

Sweat Equity: I am willing to work on the weekends and weekday evenings

Time Horizon: 5 - 10 years

Objective: Financial Freedom at the fastest rate with the most conservative risk level. Willing to sacrifice quality of life in my early 20s for financial freedom

Questions for asking a RE lawyer during my session:

If you have a question that you would like to ask an RE lawyer please follow the question guideline below so I can organize my questions to make it more efficient during my session:

Questions to the Lawyer:

What is the objective of the question?:

How will this question benefit the BP members by knowing?:

Detailed Breakdown of My situation:

I have saved up enough for a 20% down payment + some reserves to purchase a property. I've been looking in Orange county; but, I have found it extremely difficult to find a SFH property that CF more than 1k (1 tenant in each bedroom and at the avg cost of rent in the local area) on my local MLS.

I am open to moving to different cities within FL, in terms of life style I can live like a college student/spartan in order to get a higher ROI on my investment. Fun fact, during my uni days I was living in my SUV because it was more cost effective than renting an apartment. Because of this, I have no problem with renting out the master bedroom and living like a minimalist. I'm fortunate enough to have a job that I can work from home for now; however, after the pandemic I will be traveling Monday-Thursday (Consulting Job) so I am expecting to use a property management company down the road.

My goal is to have the most CF positive (+1k CF preferred) and tenant proof house in the neighborhood. I prefer to not live in the ghetto and I have been exploring other ideas like purchasing a trailer and living in the backyard while fully renting out my house.

Questions:

What are some good areas to look for house hacking properties in?

   - I was looking into Tampa/Clearwater/St Cloud area as substitutes

What are some things I need to look out for while house hacking?

    - I noticed in previous posts that I need to familiarize myself with zoning?? 

Are there any good tips to tenant proof my house?

As always, any information is greatly appreciated. Since this topic is more focused on a specific area I'm more than happy to take the people who provide the most insight (imo) out to lunch/dinner (Capital Grille, Eddy V's, Morton's Steakhouse).

Thanks to everyone that has read to this point. I'm very thankful that I have found this community that I can be a part of.

Warm Regards,

BW

Update:

Hello All,

So I'm revisiting my original first post "Challenging Real Estate Investor Logic"

Assumptions:

- Avg Market return 7%

- Negative net worth = bad

- 1%-2% complete alpha return (Not pro-forma returns)

Here were my original arguments/perspectives:

1) RE investors justify their investments because it makes 1-2% alpha considering they leverage themselves 4x their original investment in debt.

2) 4x leverage your original investment = bad

3) How do RE investors mitigate their "over leveraged" investments and prevent black swan events from affecting their investment?

4) What are the margins of safety a RE investor should have?

Here are the answers/new perspectives I have for all my questions:

1 & 2) On paper, the real estate investor could recognize 1%-2% return; however, this does not include the multiple pro-forma adjustments that maximize the return even more for the avg RE investor.

To add to point 1, I want to emphasize that the financial market (FM) investor and the RE investor recognizes yields/gains in two different perspectives. The FM investor associates over leveraged investments as extremely risky due to the volatility of the financial markets and how it magnifies potential losses/gains significantly. While the RE investor sees this leverage as more of an opportunity because, historically RE investments usually appreciate with time while providing income and a tax deduction bundled in one investment vehicle. RE investors also tend to look more at their CoC returns rather than incorporating the leverage in their calculations.

3) RE investors have multiple ways to mitigate their leveraged positions, this is due to having more control with their investments compared to the average FM investor. RE investors have a more in-efficient marketplace due to the illiquidity risk, irrational buyers, and uneducated consumers. This promotes RE investors who are knowledgeable to act on profitable situations, I like to think that RE is currently in the same era as Benjamin Grahm was in the stock market. During Grahm's era most individuals didn't know how to value companies; as a result, the people who knew how to read financial statements were rewarded with uncommon profits (Reference to a book).

4) RE investors should have cash reserves to withstand 3-6 months of mtg payments. RE investors could also add value to their investment by putting in sweat equity to their property.

There is a lot more I documented; but, it's getting pretty late and I'm pretty tired. I'm aware that there are probably a lot of grammar mistakes and spelling errors in this updated post I'll fix it whenever I can or if I feel like it, I just wanted to make an update for my future self to see and share the information I've discovered while looking more into this. I have models to prove what I'm saying, I just need to figure out how to share it on this forum.

Anyways, thank you again everyone for sharing their perspectives.

Thanks,

BW

@Jaysen Medhurst

Not sure if I can tag multiple people in a post but I wanted to ensure that you are notified about this.

@Scott Passman @Jaysen Medhurst

Apologies for responding so late.

I am deeply grateful for your advice & perspective. I would like to take both of you out for a cup of coffee; but, due to distance I'm afraid a $5 giftcard is the best I can offer for now, unless either or both of you would like to come visit me in orlando. I will be emailing both of you a $5 gift card to Starbucks. If you could please leave a message/response as a vouch that I am a man who sticks to his promises.

As for everyone else, I truly appreciate all your responses and perspectives. This thread has given me a lot to think about. I have summarized most of what everyone said here and read some additional content from books and backed up all of the theories by running some financial model calculations. 

The TL;DR: Real estate is a good investment vehicle that can be modified through different means to generate greater yields compared to avg market returns.

I will provide an update in my original post with a more detailed analysis/break down with assumptions, models, and scenario analysis to prove my arguments.

To everyone that responded to this post I appreciate it, I'm sorry I could not gift you all gift cards. Maybe down the road when I am more financially free I will be able to do that!

Hello All,

First off want to thank everyone for reading this post. I have been wanting to get into the real estate investment industry for a while now after I saved a decent amount for a down payment + rehab. I wanted to challenge some ideas that the average real estate investor has when it comes to the finances of running their properties.

It bothers me that people say they are making XX% ROI on their property and they justify that it is better than market investment even though they are leveraged literally +150k in debt to only yield a 1%-2% alpha over the market avg.

I have spoken with 10+ of colleagues who are in the real estate market and red multiple posts from bigger pockets plus other sources. It confuses me on why real estate investors get excited over a 2% alpha (compared to the market avg) and then forget that they are still leveraged a large amount $$$ (+150k on avg or 4x their original investment). To me, it seems that a majority of real estate investors don't take the necessary precautions to mitigate/hedge the risk on their properties.

And this is why I'm here. Because, I need someone to challenge my logic and tell me why a 1%-2.5% alpha justifies a 4x leverage on your original investment and what happens when we have another black swan even like the one we are in right now? 

What do real estate investors do to mitigate their 4x leveraged investment?

How do investors solve the problem of tenants not paying for 2-3 months due to black swan events?

Do real estate investors have a margin of safety and if they do what are the rules/actions they take to ensure that they meet those requirements?

Answers to these questions would be greatly appreciated! If the answers are really good I'll send you a 5$ starbucks giftcard!

Thanks,

Wong