All Forum Posts by: David Yee

Thank you @Eliott Elias. Does this approach apply to estimating the cost of the rehab before putting in an offer? Are inspectors willing to walk through a prospective property and tell me the estimated cost of rehab before I place an offer?

0 Votes

San Diego, California

Quote from @Bob Stevens:

Quote from @David Yee:

Hello! I am currently reading J. Scott's The Book on Estimating Rehab Costs. I plan to purchase my first property within the next year but will most likely be doing so out of state due to financial constraints.

How can I go about inspecting a home while out of state? Do I need to fly there? Doing so doesn't seem very cost effective. Thank you!

You do not, also stop reading books. All you need to do is connect with someone doing deals in the area and allow them to handle for you. It seems you want to get the est, then hire a GC to run the job, BAD IDEA. 90% of the time it will not end well. You must have a team in place that has a mutual benefit otherwise things will go south for you very fast. I know dozens of investors that have never seen the house or let alone been to the city. Again, it's all about having a team in place

Good Luck

Hello @Bob Stevens. Are you suggesting that I partner with another investor and pool our money and resources? Or instead form a team made up of: Real Estate Agent, GC, PM and lender and ask them to estimate the cost of rehab before I place an offer.

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San Diego, California

Quote from @Nathan Gesner:

Quote from @David Yee:

How can I go about inspecting a home while out of state? Do I need to fly there? Doing so doesn't seem very cost effective. Thank you!

That's a common method. If you're buying homes that are newer or recently renovated, you may be able to rely on pictures, video, and home inspections to purchase sight unseen. It's not recommended, but it's possible.

I would consider narrowing your search down to several properties, then flying out in person to look at their condition as well as the surrounding community.

This sounds like a solid approach. Thank you @Nathan Gesner

1 Vote

San Diego, California

Quote from @Alex Gunnerson:

Hi @David Yee,

You will want to have somebody who can be your boots on the ground, who can check out the property and send you videos.

Thank you

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San Diego, California

How can I go about inspecting a home while out of state? Do I need to fly there? Doing so doesn't seem very cost effective. Thank you!

1 Vote

San Diego, California

Thank you! I'll look at that keyladder training

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Hello,

I hope to purchase my first rental property in less than a year. I've been reading about the BRRRR method. Is using this method a good idea for first time investors with no experience in managing rental properties?

It seems riskier due to the fact that the property probably isn't in good condition and the "after repair value" might be difficult to estimate.

Thank you for your insights!

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Quote from @Bill B.:

How is stock appreciation useful if it’s not putting cash in your pocket?

Real estate appreciation can be cash in your pocket anytime you want. Banks love to lend on real estate.

You are correct @Bill B.. I was not taking equity into account. I'll read up more on this subject. Thank you so much for your time and knowledge!

1 Vote

Quote from @Bill B.:

Figure out the returns you’d need in the stock market to match rental property returns and assume I’m no genius.

In the last 11 years I’ve used $305k of my own money as down payments

I bought a total of $1.8 million in real estate.

Today I have $3.8 million in equity and my cashflow after all expenses including full management is $177,500/year.

So if you had $305k to put in the stock market today could you turn it in to stocks worth $3.8 million with dividends of $177,500/year? If so, then you should manage other peoples money for a living and take only a percent.

Ps. The equity was 100% tax free as there have been no sales. The income is only 1/3rd taxable because of $50k in depreciation.

Time is the magic formula. I’m not sure I made $10k the first year. With 5% down you’re getting 20x appreciation, even with 20% down you’re getting 5x. If you break even on the rental for 5 years and get just 4% annual appreciation you’ll be killing it. You’ve made 100%, or 400%. Add some rent inflation and you’re on your way.

You can EASILY retire with $2million in real estate equity at any age. There is zero chance I’d recommend a 50 year old retire with $2million in stocks. YMMV and GL either way.

Wow! These numbers are really impressive. Way better than the stock market.

You mentioned that even if I break even on the rental I'd still be doing great. How is the appreciation useful since it is not putting money "in my pocket" as Robert Kiyosaki would say? Do you use the equity for new investments? Any resources you think are useful would be great.

Thank you so much for your time!

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Quote from @Alexander Szikla:

You aren't taking into account principal paydown and appreciation. Cash flow is only on part of the equation.

Think about it this way. If you're property ONLY appreciates 2% on average each year that is a 5% rate of return ($2k / $40k) you aren't counting in addition to cash flow. Now make a similar assumption for the debt you are paying down.

Not to mention in a few years, you can likely refi and redeploy capital.

Thank you Alexander! You are correct. I was ignoring some of the 4 dimensions of RE investing that seem to relate to equity. Based on what you said this is the mathematical breakdown I came up with if I sell the home after 10 years of ownership. Perhaps I'm missing some of the advantages of equity though.

Total Equity after 10 years assuming 2% appreciation = Value of home - remaining mortgage

=> $121,899 - $64,207 = $57,692. This is the amount of money I walk away with from the sale.

Cash flow I accumulated was: COC ROI * cash outlay * 10 years

=> .07 * $40,000 * 10 = $28,000

Total amount of money I've accumulated at end of 10 years is:

=> $57,692 + $28,000 = $85,692

This is compared to the value of my investment after 10 years if I had put the original $40,000 in the stock market: $78,686.

Thanks again for your insight!

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All Forum Posts by: David Yee

David Yee has started 17 posts and replied 68 times.

Post: How to inspect house when purchasing out of state

Post: How to inspect house when purchasing out of state

Post: How to inspect house when purchasing out of state

Post: How to inspect house when purchasing out of state

Post: How to inspect house when purchasing out of state

Post: Should first time investors use the BRRRR method?

Post: Should first time investors use the BRRRR method?

Post: Concrete example of how long term rentals beat stocks

Post: Concrete example of how long term rentals beat stocks

Post: Concrete example of how long term rentals beat stocks