All Forum Posts by: Evan Kirkpatrick

 I think what most people would tell you is that you need to be looking to buy from a distance.  It takes more work to build up a team remotely, but the joy of modern telecommunications is that you aren't stuck buying your properties in the crazy overheated Bay Area market and can look elsewhere in the country.  

Also, yeah, if you can make $1M a year (even in CA with the high COL and the crazy state income tax) working <30 hours a week, you're going to be better off focusing on that than mucking around with real estate.  There's no urgent rush to do anything with the capital you build up; you can just have a mix of securities and keeping some liquid while you keep on trucking.

Yes, the investor side gets the higher number.

Paying off the mortgage early isn't likely to help you retire early.  When you pay extra principal, you are chopping off payments on the back end of the amortization schedule, so you're creating financial gains you wouldn't realize until you were already retirement age.  You could do a re-finance later on to strip the equity out, but if we're doing that, what's the point of paying down the mortgage now?  Otherwise, you're talking about having to sell the property to get the money back, but why would we sell something like this if our aim is steady cash flow?

While a management company might cut in to your cash flow, if you acquire good properties, you should have that cash flow to spare and still realize a strong cash-on-cash return.  If you're not the sort of person who can efficiently manage a lot of rentals, you're going to have to bring a property manager in eventually, and they can really help you grow by giving you time to pursue more deals.  I'd encourage you to run some model deals and see how they look including a property manager, and then evaluate your situation with that in mind.

My #1 question whenever someone asks me this sort of question is this - what are you trying to achieve by owning real estate?

If you're just looking to invest cash somewhere, paying down mortgages isn't the worst.  It's a guaranteed rate of return equal to the interest rate.  It's not super liquid, but for a risk-free investment it's not that bad.  Also, under 2018 tax rules, if you're paying down the mortgage on your primary residence you may not even be costing yourself the mortgage interest deduction, since a lot of people aren't going to be itemizing anymore anyway.

However, using your cash this way is very conservative. Most people get into real estate with grander goals than that. If you ever want to use real estate to do more than just supplement your income, then you need scale. To scale, you need capital - for down payments, operational costs, what have you. You can get this by involving other investors, but if you're trying to maintain 100% ownership of all your properties, you have to have some money to bring to the table to start the BRRRR cycle or whatever other mechanism you are using to make profit and cash flow in real estate. If you're looking to scale, then you need to hold on to cash flow and use it to build up the war chest to do more deals.

So, that's the choice - if you're not trying to expand, paying down mortgages can be okay.  If you're going to do more deals, then that's not what you want to do.

That's not an awesome deal for the investor investor unless the operator has a sterling track record and the deal is set up to be slam dunk.  I'd expect to see it more in the 8-10%, 70/30 range by default.  Interest rates have been creeping up - 7% isn't more than 1-2% than I would expect your commercial loan to come in at.