All Forum Posts by: Tom Cyr

Do the math. Your ROI is 0% or less.

Very quickly, let's assume your taxes are $400, your insurance is $100, your maintenance budget is $150, and your cap ex is $150.  You are now at $2000 which equals your expected rent.  What are you going to pay a manager with?   

Welcome to BP Willie.  First step in wholesaling is to put together a buyers list.

Micheal, welcome to BP.  Your plan is excellent, especially your priorities to focus on what your passion is for your time.

My advice is to share housing with family, friends, strangers, until you have some serious capital raised, OR you find a deeply discounted house to buy.  Don't rush it.  Get your ducks in a row as far as financing so that you are ready to pull the trigger when the deal comes along. 

If you jump into a house just to have one, it will be an expensive seminar that could set you back many years.  Do the math on a napkin to see what kind of profits are realistic.

If you play Cashflow 101, (if you don't, find someone to play the board game with) you'll see that the opportunity is a 50% discounted house that you can turn into a rental ONLY UNTIL YOU CAN SELL IT OR PULL THE EQUITY OUT TO BUY A BIGGER DEAL OR MORE 50% discounted houses.  The actual net on rentals is pretty small and it will take a lot of them to cash flow enough to get you to your target.  The goal is to raise capital that you can invest at a greater cap rate than rent houses with less trouble but is still within your risk tolerance.

if you live in the house for two years, you can sell it and pocket ALL the gains tax-free.  It's one of the only tax breaks for W-2 employees.  If you are living in it and sell before 2 yrs, you will have to pay a chunk of your profit out to Uncle Sam.  Unless you have progressed up the yield ladder pretty far, you probably won't get that amount back in your next deal fast enough to make a quick sale worth your while.

There are many variations of this strategy but this is sort of the most basic.  If you get your discount property-finding machine working, and you can find private lenders or sellers to finance their homes to you, you can re-sell those with owner financing for full price on a short term note and get the equity out over time without the landlord headaches.

Ask the seller to be an equity partner in deal by supplying the 20% down payment.  They cover it all and you supply the 80% note.  Your risk will be much lower and your profit could even be higher, if you are not getting much of a discount.  What is the spread between the cap rate and the loan constant options you have in front of you?  That spread is what you are splitting.   Don't tell the seller that it's going to be in the low/mid single digit yield.  They might jump at the "50% profit share" because they imagine that number to be large.  Do your math and protect your downside.

Hi Alex.  Welcome to BP. 

Keep your focus on your goal of having your money work for you. So be selective in who you take advice from. Most people in REI are not investors; real estate is a job and they use investor money for their leverage.

Do the math early in your journey to keep you from going down the wrong road for 10 yrs before you figure out that the vehicle was not the best one for the task.  Know where you are in the industry cycle.

The point of Kiyousaki's materials is that "rich" is not what is in your wallet, it's what between your ears.  The way you become a sophisticated investor is that you keep reaching for greater success.  Sophisticated investors can evaluate investments by the numbers.  Only the numbers matter, not the vehicle.

Becoming successful is not about getting lucky on a once in a lifetime opportunity.  It's about getting informed about what is possible and then positioning yourself to take advantage on a regular basis.  Warren Buffet looks for elephants but his portfolio is made up of regular deals.  And Berkshire Hathaway is not high yield by almost any measure.  

"High" for an individual is relative to what a person's financial IQ is.  But an individual with their unique risk tolerance is mostly limited by their perceptions instead of reality.  For the  person investing in 1% CD's their perception is that 3 or 5% investments have to be too risky.  For the 90% of employees who investing all their retirement in unsecured assets on Wall Street, just because everybody else is doing it, their perception is that it must be low risk.    If you are happy with 10-15% rate of return on rental real estate, it is only because you don't realize there are much higher yields in other assets.  

If you play Cashflow 101, you understand that the best deals to get you out of the rat race in general are real estate capital gains deals that you buy at 50% discount.  They help to build the capital necessary to play on the fast track.  Notice too that none of the deals on the fast track are residential real estate.  The question is, have you built a wall around yourself that keeps you in the rat race because your "investment" yields are so small, it will take decades to make any real progress?  Are opportunities outside your walls "just too good to be true"?  

To some, this may be simply semantics.  I know it was to me when I heard Lance Edwards say it for over two years.  Now I get it, not that it may make a material difference to many here...

"Investors" put money to work. If you don't have your own money in a deal making a passive return, you aren't investing. Wholesaling, fix/flip, bird dogging, etc. are all considered by the REI community "investing" when they are really "entrepreneuring." Most business cards in the REI community should say "Real Estate Entrepreneur" since very few of the people are "investing". They are buying an asset at a discount, and selling it for a higher price. "Entrepreneur" is not better or worse than "Investor", just more precise terminology.

The asset could be cars, diamonds, construction materials, or any other commodity held in inventory.  You don't call a used car dealer an investor, because he isn't.  He's a businessman who knows how to acquire a certain asset class at wholesale and develops a model to market to the public at a retail price.  He may even be using his own capital to buy his inventory, just like any other small businessman.  But again, that doesn't make him an "investor."  

So the point is, that if only 5% of the students ever buy their own property, for the very good reasons given, that is only a failure in the initial stages of the REI journey, which is putting knowledge to work capturing wholesale properties to later do something with. They may become interested in "investing" their profits at a later time, or they may become comfortable with the model they have succeeded at and just use their own excess capital to buy their future inventory, for as far as it will take them.

But, bottom line, that RE entrepreneurial work is still a J.O.B.  And if they are doing it on the side, they now have two J.O.B.'s. They better be accumulating capital to one day "invest" if they truly intend to exit the rat race.

When you hear High Yield, what ballpark do you think of?  Many passive RE investors, hard money lenders, and note buyers seem to be happy with low double digit rates of return, thinking that, relative to stocks, bonds, mutual funds and annuities, mid-teens is a respectable yield.  

Since we all seem to think that Robert Kiyousaki hung the moon, what does he teach?  Watch the Financial Intelligence part of the video that comes with the Cashflow 101 game from 1:40 to 2:00.  We scoff at the 80% who just spend the $10K and have nothing to show for it at the end of the year.  Likewise, we hope that we can do better than the 16% who just put the cash in the bank at 1/2% interest.  But how many investors here routinely and comfortably experience triple or quadruple digit returns on 5-figure or higher investments of their capital?  

It's probably harder now to make the numbers work than a year ago when you started this thread.  It's good that you just took action and got into several rental properties.  The journey is faster for those who take action.  If you made a little money in the process, all the better.  But even losing ventures are great learning experiences.

Remember how the saying goes about not being able to see the forest for the trees. That is a HUGE issue in the REI community. On one hand, everyone has stretched further than the ordinary employee type and is seeking a better life. They think that REI is the answer before they have looked at many alternatives. REI is easy to get sucked into because it has so many benefits. There are so many sections of the REI spectrum to work, and they all have different profiles. Some are simply another job, some pretend to be passive but really aren't, some are really speculative, etc.

If your houses are cash flowing NOW, that's fine, but the profit figures can be manipulated by deferring maintenance and cap ex. If you are doing 2% deals, you should have enough margin to always make a profit if they are not class D properties. But if you enter the REI space with yield targets and a 10-20 yr plan, you could be disappointed, especially if you develop bigger goals for yield.

I'm of the belief that tunnel vision does not serve the entrepreneur. If that were the case, you would have never gotten into REI. Your step out of the familiar should be a lifelong principle. If you are still getting the same yield today that you did 2-3 years ago, you are not learning. At some point, you are likely to become dissatisfied with the meager returns of rental property but you will have some equity and hopefully some accumulated savings from the income so that you can step into the next asset class, at least with some of your portfolio. Diversify and in time cut the underperforming assets loose and overweight in the higher performing assets.

Welcome to BP. There are many resources here, most of them dedicated to REI. Wholesaling is a good way to raise capital for future investing. It will also get you networked to people in the local area.

My advice is, keep your eyes open. It's easy to jump ahead to solutions and not do the hard analysis of studying the problem first to arrive at a solution that correctly answers the question.  

Write down your goals and then back up to ask yourself why each goal is important.  Write those WHYS down too and see if your goals are the best ones for the problem that you are wishing to overcome.  If you do that, your path will be easier because it will be timeless.  

May the odds be ever in your favor.